
Copyright^ . 



COFmiGHT DEPOSm 



ETHICS OF CONTRACTING 

AND 

THE STABILIZING OF PROFITS 



ETHICS OF 
CONTRACTING 

AND 

THE STABILIZING 
OF PROFITS 

BY 

F. W. LORD 



dp 



Garden City New York 

THE COUNTRY LIFE PRESS 

1918 



o- V 



Copyright, 1918, by 
F. W. LORD 

All rights reserved, including that of 

translation into foreign languages, 

including the Scandinavian. 



MAY -3 1918 
©CI.A49714 



K-n 



This book is inscribed to Arthur 
Jerome Eddy, originator of the 
Open Price Plan, a most practical 
and ethical method of stabilizing 

PROFITS. 

*********** 

Recognition is also given to many 
constructive ideas on merchan- 
dising suggested by wllliam l. 
Goodwin. To F. J. McNulty the 

AUTHOR IS INDEBTED FOR A VERY 
FAIR AND CLEAR STATEMENT OF THE 
PRINCIPLES OF TRADES-UNIONISM. 



PREFACE 

The author of this book has endeav- 
oured to set forth, as the result of nearly 
twenty-five years' experience, some sug- 
gestions and ideas which may be of 
value, not only to the contractor, but to 
those with whom he comes into business 
contact: the owner, architect, consult- 
ing engineer, general contractor, manu- 
facturer, jobber, and last, but not least, 
the workmen's union. 

Under different headings will be 
pointed out customs with which every 
contractor is familiar that are in vari- 
ous degrees deplorable. To a great ex- 
tent these sharp practises and petty 
meannesses differentiate the commer- 
cialism of business from the dignity of a 
vii 



viii PREFACE 

profession. Business is the art of inter- 
changing work and services through the 
medium of money, but from time im- 
memorial, the seller has endeavoured to 
get the better of the buyer, and the buy- 
er of the seller. With the professions, 
the idea that should be, and often is, up- 
permost, is the giving of service, the 
compensation being a matter of minor 
consideration. With business, the up- 
permost idea is generally the extent of 
the compensation, and, just as soon as 
the professional man allows himself to 
be governed by commercial considera- 
tions, he is lowered to the business level. 
Similarly, if the business man has as his 
main object the giving of full value for 
his services, his occupation is elevated to 
the dignity of a profession. 

One of the easiest things to do is to 
find fault with things or with the way 
they are being done. Faults are always 



PREFACE ix 

more or less evident, and it is easy and 
natural to point them out, but if criti- 
cism stops there it does little good. 

Constructive criticism differs from 
the fault-finding kind in the same gen- 
eral way that anything constructive dif- 
fers from what tears apart or destroys. 
The one crushes and inhibits; the other 
elevates and helps. 

The object of this book will be to 
show that it is for the best interests of 
all persons concerned in a building op- 
eration to co-operate and to treat each 
other openly and fairly, rather than to 
try to get ahead of one another by any 
of the thousand and one ways which are 
so common. 

No claim is made for originality in 
the predominating idea that the only 
satisfactory way to attain real success 
is by the simple straightforward path of 
treating everybody in just the same way 



x PREFACE 

one likes to be treated oneself. Every- 
one acknowledges this rule academical- 
ly, but its practical application often ap- 
pears difficult. 

In addition to ethical considerations 
of various phases of the business of con- 
tracting, some constructive suggestions 
are here tendered that should be of bene- 
fit to the contractor and, it is hoped, to 
others with whom he has dealings. These 
ideas and recommendations will unques- 
tionably make for more stabilized earn- 
ings in the business, instead of some- 
times abnormal profits and sometimes 
unmerited losses. Above all, they are 
based on fairness and equity to both 
buyer and seller. 



CONTENTS 

PAGE 

Preface vii 

1. The Owner and the Contractor . . 1 

2. The Architect and the Contractor . 9 

3. The Consulting Engineer and the 

Contractor 16 

4. The General Contractor and the Sub- 

Contractor 26 

5. The Contractor and the Union . . 39 

6. The Contractor, the Supply House 

and the Manufacturer .... 57 

7. The Contractor and his Competitors . 72 

8. The Contractor and his Staff ... 86 

9. Suggested Codes of Practice for the 

Contractor 92 

10. The Co-operative Secretary . . . 108 

11. The Central Estimating Bureau . . 147 

12. Price Stabilizing 155 

Appendix 179 



THE OWNER AND THE CON- 
TRACTOR 

The immediate pecuniary considera- 
tion should not be the one and only 
basis of doing business. 

At first thought, this might seem to 
imply throwing to the winds all the eco- 
nomic fundamentals of demand and 
supply, competition, and the law of the 
survival of the fittest. But not so ; and 
the author of this book will aim to show 
how these ideas may be adapted to 
broad-minded and fair standards, rather 
than degraded by taking every technical 
and legal advantage possible. Further- 
more, it will be shown that construction 
work cannot rightly be appraised by the 
mere comparison of the bids of compet- 
l 



2 ETHICS OF CONTRACTING 

ing firms. Instead, we shall see that the 
wiser and more equitable method of 
comparing competitive bids is not by 
studying the figures only, but also by 
considering the contractor's reputation 
for fair dealing, for doing good work, 
and for giving efficient service. 

Some architects and engineers will 
tell the owner, and really believe what 
they say to be true, that their plans and 
specifications are so definite and bind- 
ing that all bids may be judged by the 
figures alone. This is a fallacy, in spite 
of the assumption that none but first- 
class contractors are allowed to estimate. 
As the owner should appreciate, his 
architect is more or less compelled to de- 
fend this conventional way of obtaining 
prices, as otherwise, the owner would 
say, "What is the use of competition? 
Why not just give the order to some 
concern best fitted to do the work?" As 



OWNER AND CONTRACTOR 8 

a matter of fact, under certain circum- 
stances, this may be the best way but, 
as already mentioned, the author does 
not advocate eliminating competition, 
but will endeavour to point out that the 
owner's interests often may be best con- 
served by awarding the contract to other 
than the lowest bidder. Some of the 
reasons for this are as follows : 

The low bidder may have a good rep- 
utation, but with a surfeit of work at 
the time be unable to handle the con- 
tract as well as ordinarily; he may not 
have had experience in just this par- 
ticular type of building, or in the vicin- 
ity of the work, and thus be unfamiliar 
with local labour conditions ; or he may 
not be so well able, for a variety of rea- 
sons, to obtain the proper men or ma- 
terials as some other contractor ; he may 
be careless or incompetent, or so careful 



4 ETHICS OF CONTRACTING 

and fussy that he would delay the whole 
general progress of the building. 

This question of time is a factor of 
much more importance than most own- 
ers appreciate. The fact that a specifi- 
cation states "time is the essence of the 
contract" does not make a slow con- 
tractor fast. The important fact to real- 
ize is that when a building is to be fin- 
ished quickly it is essential that all the 
trades be kept up to speed all the time. 
It is a simple thing to prove that a few 
hundreds of dollars saved by letting just 
one of the sub-contracts to a slow or in- 
efficient concern may so retard the whole 
operation that the apparent saving on 
this one contract really costs the owner 
thousands of dollars in interest and non- 
use of the building. Probably not one- 
quarter of the buildings started are done 
on time, but how often does the owner 
figure out or know what the delay has 



OWNER AND CONTRACTOR 5 

cost? In almost all these cases the de- 
lay could have been avoided if more care 
had been exercised in the selection of the 
contractors, and if more recognition 
were given to the contractor who has al- 
ways been prompt and efficient. 

There is another reason why some 
contractors should be shown a prefer- 
ence, and that is, on personal or psycho- 
logical grounds. In other words, some 
architects and builders, or some engi- 
neers and sub-contractors, pull well 
together; and when they thus work in 
harmony there is absolutely no question 
but that it is to the advantage of the 
owner. If opposite conditions prevail, 
not only does the quality of the work 
suffer, but also it takes longer to do the 
work; and certainly the cost is indirectly 
more. 

In this discussion it must of course be 
borne in mind that the contractor's fail- 



6 ETHICS OF CONTRACTING 

ings or virtues are all relative and that 
no contractor is perfect. As will be 
shown in the next chapter, one of the 
architect's functions should be to dis- 
criminate between bidders and weigh 
their relative advantages from the 
standpoint of the owner's ultimate in- 
terests, instead of from the immediate 
one of saving a small sum on the letting 
of the contract. 

From the ethical standpoint, it is evi- 
dent that such a policy is not unfair to 
the bidders; as the award goes to the 
one who is most deserving from the 
broadest standpoint. Specifications of- 
ten state that the owner reserves the 
right to let the contract as he may see 
fit ; and this prerogative should be more 
generally exercised. 

One way of ranking contractors ac- 
cording to merit is to keep a list of those 
who are permitted to estimate, chang- 



OWNER AND CONTRACTOR 7 

ing the order of names on the list from 
time to time, in accordance with the 
architect's or engineer's experience. If 
the contractor is late, makes mistakes, 
does poor work, over-charges for extras, 
is too technical, or in any other way gives 
trouble, it should be noted, and his rank- 
ing affected accordingly. Furthermore, 
it should be made known that such lists 
exist, as by this means the whole morale 
of the business is improved and the own- 
er's interest best guarded. No one would 
think of buying a suit, a piano or a mo- 
tor car on price alone, but would also 
consider the reputation of the maker. 

It is consequently contended, and cer- 
tainly with justice, that a contractor's 
years of faithful service should entitle 
him to a preference. Certainly a great 
incentive to doing good work would be 
the knowledge that it would be so re- 
warded. 



8 ETHICS OF CONTRACTING 

Architects know very well that this 
is true, but few of them have the moral 
courage to use their influence in favour 
of one of the higher bidders, fearing 
that they might be criticised as having 
ulterior motives. 

Most owners build but once, and they 
should trust just as much to the recom- 
mendations of their architects in the 
selection of the contractor as in the mat- 
ter of plans and design. 



THE ARCHITECT AND THE 
CONTRACTOR 

It is a somewhat unfortunate fact that 
most architects are poor business men. 
Their profession is one of the most de- 
lightful in the world, offering, as it 
does, unlimited opportunities to work 
out the uses of a building efficiently and 
economically and, at the same time, to 
produce a beautiful appearance. But 
the more artistic the architect is, the less 
liable he is to be proficient from the busi- 
ness standpoint. One reason why archi- 
tects as a class are interesting, socially 
attractive and companionable, is because 
they look at life from the artistic in- 
stead of from the commercial side, and 

9 



10 ETHICS OF CONTRACTING 

naturally this detracts from their busi- 
ness efficiency. 

The one who feels this business weak- 
ness the most is the contractor, as it is 
he with whom the architect deals. In 
the great majority of instances, the 
architect is better educated, and has had 
a broader training than the contractor, 
and it is, therefore, evident that the for- 
mer should be the one to set the stand- 
ard for the latter. Unfortunately, this 
is not always the case, one general in- 
stance being with regard to work which 
should have been included in the con- 
tract, but has not been so included, ex- 
tra work thus being made necessary 
through the oversight, or lack of expe- 
rience of the architect. 

When some such item comes up, it is 
often the impulse of the architect to cov- 
er it up rather than make a straightfor- 
ward explanation to the owner; and 



ARCHITECT AND CONTRACTOR 11 

either the contractor is made to do the 
work for nothing, or he is promised or 
allowed concessions in some other part 
of the work. Not infrequently the 
promised concession never materializes ; 
and the owner has the work done with- 
out paying anything for it. 

As the result, is it a wonder that the 
contractor, with what might be called 
his inferior ethical training, is tempted 
to seek redress by doing poor work, or 
by overcharging when the opportunity 
occurs? Nine times out of ten, when 
the time does come, he will more than 
make up for the injustice. Of course, 
two wrongs do not make one right but 
in this case the contractor cannot be 
very much blamed, even though his 
method of squaring the account is some- 
what primitive. 

Doubtless the architect justifies his 
procedure on the theory that he cannot 



12 ETHICS OF CONTRACTING 

afford to, and should not be asked to 
finance his mistakes, be they errors of 
omission or commission. As a matter 
of fact, it is not his province to pay for 
his mistakes, though this may sound 
strange at first thought. As a general 
rule, architects are paid too little for 
their services rather than too much. 
Their commission never was intended as 
an insurance premium against defects 
or omissions ; but the trouble with most 
architects is that they lack the courage 
to say so to their clients. There never 
was an architect who was infallible, and 
a certain factor of error should be ex- 
pected and discounted by the owner, 
and it should be paid for by him. 

The contractor has a wonderful op- 
portunity to study and compare differ- 
ent architects and their methods, and all 
contractors of experience know that the 
most successful architects are those who 



ARCHITECT AND CONTRACTOR 13 

do not fear their clients and who insist 
on treating contractors with fairness; 
within limits, the more arbitrary and 
positive the architect is, the more he is 
respected by his client. The client en- 
gages him to plan, to choose, and other- 
wise to render expert service. If he al- 
ways defers to his client he stands in 
his own light and can never expect to 
be pre-eminently successful. Of course, 
this does not mean that in matters of 
personal taste and comfort the client's 
wishes should always be subordinated to 
the ideas of the architect, although in 
most cases this is the safest plan. 

A clear-sighted and able architect will 
not, for his part, scorn to take sugges- 
tions from the contractor, and it is ob- 
vious that in general things will work 
out to the best advantage if each is can- 
did with the other as well as fair and 
straightforward. 



14 ETHICS OF CONTRACTING 

To this should be added that instead 
of the architect's always having as his 
sole object to obtain for his client the 
lowest possible price from the con- 
tractor, he should be equally insistent 
that the latter be paid fairly for the 
work installed and for his services in do- 
ing it. The architect should recognize 
that the administrative part of a con- 
tractor's organization is as much a part 
of the work as are the labour and mate- 
rial, and good service should be paid 
for as well as good work. 

In almost all buildings extras are un- 
avoidable, especially with some of the 
trades, such as electric wiring. The 
architect almost never realizes how much 
extras cost, and often the contractor 
does not. The cost of the actual direct 
labour and materials entering into a 
change is comparatively easy to deter- 
mine; but few contractors, and almost 



ARCHITECT AND CONTRACTOR 15 

no architects, appreciate the amount of 
indirect expense involved. Not only- 
do extras interrupt the orderly progress 
and regular swing of the contract work, 
often at a large direct extra cost for la- 
bour to the contractor, but also the spe- 
cial overhead expense in looking after 
extras is disproportionally large. In 
fact, the sum of the office expense and 
interruption cost of an extra is often 
more than the measurable cost of labour 
and materials used. 

In concluding, if the architect will use 
his experience and judgment in select- 
ing a contractor who does good work 
and who gives good service, and if he 
will recommend a fair rather than nec- 
essarily the lowest price for the work, 
he may be assured he is serving his 
client, from the ultimate standpoint, in 
the very best way. 



THE CONSULTING ENGI- 
NEER AND THE CON- 
TRACTOR 

The consulting engineer should act as 
a clearing house for technical informa- 
tion — to select one of many possible so- 
lutions of the problem and see that it is 
carried out; to study and co-ordinate 
methods and materials with a view to 
determining their field of usefulness and 
applicability. The proper field of the 
engineer is not to design apparatus, but 
rather to determine the conditions un- 
der which it should operate ; then to re- 
ceive and select from among the sug- 
gested schemes offered by manufactur- 
ers and contractors that one which is 
economically and functionally the best. 

16 



CONSULTING ENGINEER 17 

The relationship between the engi- 
neer and the contractor should never be 
unfriendly, as each is dependent upon 
the other. Some contractors think they 
might dispense with the engineer, but 
all engineers require the services of the 
contractor. The most reputable con- 
tractors always welcome the employ- 
ment of a consulting engineer, as he re- 
lieves them of much responsibility and 
prevents disputes with the owner over 
questions of charges. Of course, the 
shiftless, incompetent or dishonest con- 
tractor is averse to having an expert su- 
pervise his work and audit his accounts, 
but especially in cases where the orig- 
inal work has been altered or enlarged, 
the engineer, on account of his per- 
sonal disinterestedness, is the one who 
is best fitted to convince the owner that 
the changes, etc., have been necessary 
and the charges reasonable. 



18 ETHICS OF CONTRACTING 

No fair-minded engineer stands in 
the way of a contractor's saving what 
he can in the cost of the work, provided 
the same or better results are accom- 
plished. These practical short-cuts are 
part of the contractor's stock in trade 
and the wise engineer should encourage 
such savings. In the long run, by so do- 
ing, the engineer acquires many valu- 
able ideas, thus increasing his efficiency 
and so benefiting the owner. If the con- 
tractor be allowed no leeway whatever 
with the specifications solely because the 
change would be at variance with them, 
an attitude of unfriendliness is apt to be 
engendered, resulting in friction, and 
often in positive loss to the owner. 

A spirit of friendly co-operation be- 
tween the engineer and the contractor 
should always be welcomed and encour- 
aged. Any experienced engineer can 
recall instances in which serious mis- 



CONSULTING ENGINEER 19 

takes would have been committed had 
not the contractor called them to his at- 
tention. 

Some engineers object to a contrac- 
tor's making substitutions in the specifi- 
cations on the ground that it would be 
unfair to the other bidders. This is an 
untenable objection because any other 
bidder, if awarded the contract, would 
not hesitate to make a similar substitu- 
tion provided the idea occurred to him. 
The substitutions should be made after, 
rather than before the contract is let, 
otherwise an intelligent comparison of 
the bids is difficult, if not impossible. 

It is always difficult to know just 
where to draw the line in business ethics. 
One obvious distinction between right 
and wrong is the difference between 
what is fair to all concerned and what 
is one-sided. One of the most common 
unsound practices is to have a contractor 



20 ETHICS OF CONTRACTING 

draw up competitive plans and specifi- 
cations. Such work is essentially the 
function of the architect or the engineer. 
Whether or not a consulting engineer 
be engaged is largely a question to be 
decided between the architect and his 
client. Some architects with large of- 
fice organizations employ their own spe- 
cialists competent to write the engineer- 
ing specifications ; but, as a rule, it can- 
not be expected that an architect shall 
also be an engineer with knowledge ade- 
quate to the proper consideration of the 
many highly technical problems that 
arise in heating, ventilating, electric 
work, etc. 

Some owners, especially those build- 
ing for the first time, assume that the 
architect should know everything, and 
if a consulting engineer is suggested the 
client is apt to feel that the commission 
should come out of that paid to the 



CONSULTING ENGINEER 21 

architect. This is not fair, and if the 
architect puts the case candidly as above 
outlined, the client will not object, un- 
less he is short-sighted and unreason- 
able. It should be an easy matter to 
demonstrate that the superior training 
and experience of the engineer as a spe- 
cialist makes him worth his fee, even 
though it be considered merely in the 
nature of a premium paid to guard 
against errors and inefficiencies. 

Many architects, in order to get 
around this situation, will invite a con- 
tractor to lay out work and will then 
take bids on the plans and specifications 
so prepared. In the great majority of 
instances such an opportunity is con- 
sidered both by the architect and by the 
contractor as a privilege, because it is 
thought that this preliminary study of 
the work and the knowledge which re- 
sults give the contractor an advantage 



22 ETHICS OF CONTRACTING 

over his competitors. As a matter of 
fact, as will be acknowledged by the 
most intelligent and experienced con- 
tractors, instead of this alleged privilege 
being an advantage, it is most decidedly 
just the reverse. The reason of this is 
as follows : 

A contractor's layout is almost invar- 
iably recognized as such, because no 
name of any consulting engineer ap- 
pears on the plans, and the competing 
contractors will criticize it, either as be- 
ing lavish, in which case it will be insin- 
uated that the favoured contractor who 
has laid out the work will cheapen it and 
not do it as specified if he is awarded 
the contract; or, the criticism will be 
that the layout has been made inade- 
quate so as to be productive of extras. 

From both points of view there is 
much on which to base the criticism, be- 
cause it is often tacitly understood that 



CONSULTING ENGINEER 23 

the contractor who does the free engi- 
neering is to get the contract at the price 
determined by the bids submitted ; and, 
under these circumstances, with no con- 
sulting expert to supervise, the contrac- 
tor, in nine cases out of ten, disregards 
the specifications and substitutes the 
cheapest sort of work that he thinks will 
pass. 

The practice is bad and unfair, and it 
should be discountenanced. Even from 
the standpoint of the contractor who has 
also done the engineering it is often dis- 
advantageous, and acts like a boomer- 
ang, as the architect will very likely not 
allow payment for bona-fide extras, on 
the theory that as the contractor laid out 
the work, he should have anticipated 
and included the extra in the contract 
specifications. 

In a similar way, but for different 
reasons, it is not considered right for the 



24 ETHICS OF CONTRACTING 

engineer to invade the domain of the 
contractor by purchasing direct from 
the manufacturers materials, appliances 
and apparatus. The engineer's argu- 
ment that he can save the contractor's 
commission is in most cases not true. 
The contractor is generally a keener 
buyer than the engineer; and moreover 
all progressive manufacturers are will- 
ing and glad to allow the contractor a 
better price than when selling to the ul- 
timate consumer, whether direct or 
through his engineer. 

Furthermore, the advantages of a 
unit responsibility as to deliveries as 
well as installation make it better for 
the owner to hold the contractor respon- 
sible than to expect his engineer to co- 
ordinate properly the various items en- 
tering into the work. 

Undoubtedly, some engineers are 
competent contractors, and, in the same 



CONSULTING ENGINEER 25 

way, some contractors are the best engi- 
neers; but it is far better for the con- 
tractor to confine his attention to con- 
tracting and the engineer to limit his 
work to engineering. Similarly, it is a 
mistake for the builder also to be the 
architect; or the architect to be also the 
builder. 



THE GENERAL CONTRACTOR 
AND THE SUB-CON- 
TRACTOR 

As is evident from the context of this 
book, the various aspects presented of 
the ethics of contracting are those of the 
sub-contractor rather than of the gen- 
eral contractor. The sub-contractor's 
relationships embrace virtually all of 
those of the general contractor, whereas 
those of the general contractor cover 
only some of those of the sub-contractor. 
In order to bring out more clearly this 
difference, it may be well to define more 
closely what is meant by the general 
contractor. Formerly, the accepted idea 
of a general contractor was of one who 
executed all portions of a building op- 

26 



GENERAL CONTRACTOR 27 

eration with his own force of masons, 
carpenters and other necessary skilled 
and unskilled labourers. 

Nowadays, by general contractor is 
almost invariably meant one who as- 
sumes an entire contract, but who sub- 
lets the various parts to specialists. Of- 
ten such a general contractor will do 
with his own men the mason or carpenter 
work; but as a rule he will sub -let every- 
thing. 

The wisdom of sub-letting is obvious, 
as any modern building operation re- 
quires a tremendous amount of detail 
and it is evident that a group of sub- 
contractors having trained administra- 
tive forces can work better, and more 
efficiently obtain and install the special 
materials required than any one organi- 
zation. This is apparent when it is real- 
ized that in the plumbing, heating, elec- 
tric work, etc., in each instance, hun- 



28 ETHICS OF CONTRACTING 

dreds of articles have to be procured and 
installed, each one particularly specified 
or adapted for the work being done. 

To know where to obtain to the best 
advantage, both as to time and price, all 
of the fittings and devices, each one of- 
ten of special kind, size, shape, colour 
and manufacture, requires an intimate 
knowledge and experience which one 
cannot expect to find in the office of a 
general contractor. In addition to this 
complexity of material requirements 
must also be considered the question of 
skilled workmen. Most certainly the 
sub-contractor, constantly doing work 
of his special kind, will have better men 
and will do better work than a general 
contractor who only occasionally em- 
ploys electricians, steamfitters, etc. 

This phase of the contracting busi- 
ness is particularly mentioned, and to 
some degree elaborated upon, because 



GENERAL CONTRACTOR 29 

some general contractors, principally 
those who do only percentage work, at- 
tempt to justify their policy of not sub- 
letting anything by claiming to save the 
profits of the sub-contractor. Instead 
of making a saving, it may be safely said 
that such a course invariably adds to the 
cost, and also results in a poorer quality 
of work. The best proof of this state- 
ment is the fact that special departments 
of general contractors are never suc- 
cessful competitors of concerns who de- 
vote all of their time and ability to cor- 
responding special branches of the busi- 
ness. 

It might be suggested that the ethics 
of this situation were automatically 
guarded by the economics involved, but 
this is not always so, particularly where 
the general contractor is interested in 
the financing of the operation. In such 
cases the general contractor is supreme 



SO ETHICS OF CONTRACTING 

and no opportunity ever arises to dis- 
prove his statements, because no two 
buildings are alike and, consequently, 
any excessive costs cannot be demon- 
strated by comparisons. 

Another proof of the wisdom of sub- 
letting is given by the fact that some of 
the best builders have tried and aban- 
doned the policy of doing such work di- 
rect, and even those general contractors 
who have their own mechanical depart- 
ments (heating, electric work, etc.) , sub- 
let when they take a contract for a fixed 
price. 

An abuse which has gone unrectified 
for too long a time is the withholding by 
the general contractor of money that 
has been earned by his sub-contractor. 
Careful inquiry shows that over ninety- 
five per cent, of general contractors do 
a large share of their business on the 
capital of their sub-contractors. 



GENERAL CONTRACTOR si 

In fact, the custom is so common, that 
the mere unsupported statement of the 
general contractor that the owner has 
not paid him has come to be accepted al- 
most as an absolute excuse for not mak- 
ing payments according to the terms of 
the contract. A certain amount of leni- 
ency should be shown by the sub-con- 
tractor when the general contractor has 
been unavoidably held up; but the in- 
justice and serious hardship which the 
sub-contractor suffers is mostly on 
false representations; in other words, 
just because the general contractor has 
more pressing needs for the money 
properly due his sub-contractor, the lat- 
ter is made to wait. 

Very few sub-contractors can afford, 
or rather very few think they can af- 
ford, to antagonize the general contrac- 
tor by insisting on being paid strictly in 
accordance with the contract terms, with 



32 ETHICS OF CONTRACTING 

the result that the evil grows and flour- 
ishes, making it possible for the gener- 
al contractor to do an increased amount 
of business, at the expense of the sub- 
contractor. 

Another abuse, for which, however, 
the sub-contractor is partly to blame be- 
cause he permits it, is the so-called shop- 
ping of bids. The practice is so well 
known, and is so almost universally fol- 
lowed that it may appear trite even to 
mention it; but, as a remedy will be 
proposed, it is thought advisable to il- 
lustrate the abominable custom by an 
example, so that those less intimate with 
the ins and outs of contracting may fully 
understand. 

Let us say that the architect has asked 
several contractors to tender proposals 
for the complete structure, the specifi- 
cations and plans detailing and describ- 
ing what is to be done under the various 



GENERAL CONTRACTOR 33 

headings. Each of the general contrac- 
tors proceeds to gather in bids on the 
various parts of the work by sending 
out scores of printed postal cards, each 
of which asks for "Your price on your 
line of work" on the building mentioned. 
These promiscuous invitations to esti- 
mate are often sent out absolutely with- 
out any discrimination as to the fitness 
of the bidder, and often ten or fifteen 
proposals are received, when not more 
than three or four of the firms so bid- 
ding are really competent to carry out 
the contract. The general contractor 
then tabulates the bids and uses the low- 
est one as the basis of his estimate. 

When the general contract is award- 
ed, the next step is in order. Three or 
four of the sub-contractors who have 
put in the lowest prices are given the 
"opportunity", of revising their figures, 
with the result that they all, including 



34 ETHICS OF CONTRACTING 

the low man, reduce their bids. The 
general contractor then calls in the low- 
est bidder, or if he is notably poor or in- 
competent, one of the better contractors 
nearly as low in price, and addresses 
him substantially as follows: 

"Mr. Smith, it is some time since you 
have done work for this office ; the archi- 
tect thinks very well of you and we 
would like to give you the contract ; but 
your firm is considerably higher than 
other responsible bidders. If you can 
make your price lower the contract is 
yours." 

If Mr. Smith is not very experienced 
he will assume that his estimate must be, 
high, inasmuch as he has been told that 
his competitors are so much lower; and 
the offer is accepted. Even though he 
may doubt the veracity of the general 
contractor, he will think twice before re- 
fusing, partly to avoid offending and 



GENERAL CONTRACTOR S5 

partly because there is always a chance 
that the contract may be profitable or 
that it may lead to other work. 

In all fairness, it should be acknowl- 
edged that Mr. Smith often follows 
this bad example when it comes to 
the purchasing of his supplies, and in a 
similar manner plays the dealers against 
each other; but the chances are that he 
would not do this if he had not been 
forced into it. 

The practice is of course indefensible, 
its only excuse being that it is so gen- 
eral. To correct it is more than any 
one person or concern can do, but any 
association of sub-contractors or dealers 
could stop it, in either instance, over 
night, if they would co-operate. 

The sub-contractor suffers other 
abuses at the hands of the unscrupulous 
general contractor, which sometimes are 
as iniquitous as blackmail. For instance, 



36 ETHICS OF CONTRACTING 

the sub-contractor is back-charged with 
all sorts of items, such as part of the cost 
of the watchmen, telephone, scaffolding, 
cleaning up, and all sorts of other items, 
regardless of any real liability involved. 
If these back-charges were moderate 
and divided in proportion, they might 
be more easily justifiable; but it is per- 
fectly well known that even when they 
are included in the work of the general 
contractor, he charges the sub-contrac- 
tor for them, not once only, but some- 
times several times. 

On one occasion a general contractor 
had in a building he was remodelling a 
newly painted room so damaged by the 
carelessness of an unknown workman 
that it had to be repainted. The general 
contractor, not knowing to whom to 
send the bill, sent it to thirteen of the 
sub-contractors at work in the building, 
stating in each case that it had been re- 



GENERAL CONTRACTOR 37 

ported that one of their men had caused 
the damage. Eight of these sub-con- 
tractors paid the bill rather than have a 
dispute with the contractor, who had 
much desirable work to give out. This, 
of course, is an extreme case, but it il- 
lustrates the advantage which is fre- 
quently taken of the sub-contractor. 

It is evident that it is beyond the pow- 
er of any individual to bring about re- 
forms where such conditions exist. Even 
a good many individuals would be un- 
able to accomplish much unless there 
were some means of voicing their pro- 
test together. 

All such practices would cease to ex- 
ist as soon as they became generally 
known, as no one in the wrong can bear 
the pressure of adverse public opinion 
and successfully continue in business. 
A method of making known, and so 



88 ETHICS OF CONTRACTING 

stopping all such acts of petty extortion, 
is described in the chapter devoted to 
the functions and duties of the profes- 
sional secretary. 



THE CONTRACTOR AND THE 
UNION 

No intelligent employer objects to 
unions nowadays just because they 
are unions. Unquestionably the men 
have a right to organize, as it gives them 
a protection which they need and to 
which they are entitled. The power thus 
derived is very great, and dangerous 
when improperly applied; not so much 
perhaps to the employer as to the men 
themselves, although this is a point 
rather difficult for their rank and file to 
comprehend. 

The faults of unionism are much more 
evident, and most often appear, during 
the first years of organization. It is 
hardly to be expected that when a group 

39 



40 ETHICS OF CONTRACTING 

of men organize and begin to feel their 
power they will not wish to show it at 
the first opportunity, even though their 
grievances may be trivial. This is dem- 
onstrated by the well-known fact that 
the longer the union has been in ex- 
istence, the less frequently does it call 
a strike. 

Much of the friction between employ- 
er and employe has been through the 
fault of the former; but fully as often 
the workmen have been at fault. This 
is because they have been badly advised, 
and also because they have been actu- 
ated by consideration of immediate in- 
stead of ultimate results. The bad ad- 
vice has often been given by the ultra- 
radical members who, though in a small 
minority, frequent the meetings, and 
like to expound their economic theories, 
which sound well to a superficial listen- 



CONTRACTOR AND UNION 41 

er, but being industrially wrong will not 
work out. 

In other words, many strikes are 
called not through any crying demand 
of the majority but through the work- 
ings of a very small minority who really 
do not represent the body as a whole. 

If the so-called better element regu- 
larly attended the meetings to watch 
over the union's interests and share in 
its duties and responsibilities, ninety 
per cent, of the strikes that are called 
would never occur. 

When the employer treats his men 
fairly and compensates them adequately 
the large majority are satisfied and work 
for him faithfully ; yet there is generally 
a minority that it is impossible to satis- 
fy no matter what is done. 

It is necessary in practice to classify 
workmen into several grades, from the 
journeyman to the apprentice, with a 



42 ETHICS OF CONTRACTING 

set rate for each ; but this classification is 
probably against the best interests of 
the men as a whole. The reason is obvi- 
ous ; such a procedure to a great extent 
kills the ambition and eliminates the 
progressiveness of the individual. Of 
course, it raises the wages of poor work- 
men, but it just as certainly lowers the 
pay of his superiors. If this union wage 
standard ceased to exist there is no 
doubt that the incentive to the individ- 
ual and therefore his productiveness, 
would be increased, with the result that 
the wage return as a whole would be 
augmented. 

If there were no unions, and men were 
paid on the basis of their fitness only, 
undoubtedly many now receiving good 
wages would get much less. The unions 
in thus stabilizing wages function some- 
what as an insurance medium; and the 
loss to the individual which would result 



CONTRACTOR AND UNION 43 

through his lack of efficiency is not felt 
by him, but is borne by those superior 
workmen who accept the same pay. 
Viewed in this light the arrangement has 
its advantages, as stable conditions are 
much better than unstable ones. 

Far worse than the grading of pay, 
which is customary, and which from the 
practical standpoint is necessary, espe- 
cially in large cities or wherever the per- 
sonnel of the contractor's force is con- 
tinually changing, is the iniquitous prac- 
tice of limiting the amount of work that 
shall be done per day per man. It is 
fortunate that this practice is disap- 
pearing and now very seldom occurs, as 
it stultifies both the workman and the 
industry in which he is employed. 

Many employers of large numbers of 
men are opposed to any recognition 
whatsoever of unions, on the theory that 
any concession made to the men is fol- 



44 ETHICS OF CONTRACTING 

lowed by arrogant demands for more. 
Unfortunately, this has sometimes been 
true, but it should not be so. If a con- 
sistent policy of fair dealing with the 
men is followed there is little doubt of 
their responding in kind. The average 
artisan is just as fair and honest, if he 
is properly approached, as his employ- 
er; but hard experience, and poor ad- 
vice by the disturbing element combine 
to make him suspicious. 

The workmen or their union repre- 
sentatives should always have free ac- 
cess to the employer, and a spirit of open 
discussion of conditions and of griev- 
ances should be encouraged; and arbi- 
tration, as the only natural and fair 
method of settling disputes, should be 
always welcomed by both sides. Prob- 
ably the only good argument which em- 
ployers have against arbitration is that 
the labour unions have been known to 



CONTRACTOR AND UNION 45 

fail to live up to agreements. To cor- 
rect this, unions might be incorporated, 
but this the unions do not favour, one 
of the main reasons given being that 
the action of a small and unrepresenta- 
tive minority, holding session when the 
so-called better element is not present, is 
binding upon all members, thereby mak- 
ing every individual legally responsible. 
If unions were to incorporate, and if 
more inducement were offered to attend 
meetings by means, for instance, of re- 
bating part of their dues to all those at- 
tending, this reason would not hold, and 
various advantages would follow: not 
only would the increased attendance be 
more truly representative and therefore 
better, but the added responsibility 
would elevate the cause and standing of 
unionism. It has been the common mis- 
take both of unions and employers to 
hold their meetings behind closed doors, 



46 ETHICS OF CONTRACTING 

but by having them open to all, criticism 
would be disarmed and fair dealings 
would be in a measure guaranteed. It 
is a tribute to the intelligence of some 
of the unions, and to some associations 
of employers that this tendency towards 
publicity is increasing. 

It would be comparatively easy, if 
unions were generally incorporated, and 
thus negotiations and contracts made 
more binding, to inaugurate a stabiliz- 
ing movement in regard to wages which 
would be beneficial alike to the workmen 
and to those who build for investment. 
By this is meant the adoption by the 
union in conference with the Federal 
Trade Commission, let us say, of a slid- 
ing scale of wages founded on the cost 
of living and based upon an adequate 
standard as a minimum. Such a scale 
would of necessity always be based on 
the costs of food, clothing, etc., of a pe- 



CONTRACTOR AND UNION 4? 

riod previous to that contemporaneous 
with the scale ; but the average would be 
fair, and if those intending to build 
could thus figure out the labour cost, this 
very uncertain item would be eliminat- 
ed ; and steadier employment would also 
thus be assured. 

If by some such method a fair scale 
of wages could be arrived at, it would 
be a good idea to provide for a differen- 
tiation in scale depending on the as- 
sured term of employment. Any man 
would work at a lower rate if he were 
hired by the month than if hired by the 
day, and this would lead to giving the 
highest pay to those who work by the 
day, which is fair and reasonable. This 
would also tend towards having the 
younger and more vigorous men do the 
more arduous work, leaving such posi- 
tions as those of apartment house engi- 
neers, electricians, etc., to be filled by the 



48 ETHICS OF CONTRACTING 

older men who are not physically fit for 
the heavy work often required in build- 
ing construction. 

This whole problem of wage regula- 
tion is too large and complicated to be 
undertaken locally ; it should be done na- 
tionally and in conference with the Fed- 
eral Trade Commission, the National 
Chamber of Commerce or some other 
disinterested body. 

It is well to remember that many 
workmen have not had many advan- 
tages, and as this is their misfortune 
rather than their fault, it is doubly the 
duty of every employer to help them 
out of any misconceptions and preju- 
dices they may have, by open dealings 
and fair treatment, instead of constantly 
fighting and opposing them. Too many 
employers feel that it is a mistake to 
show any consideration for the men, 
fearing that it will be thought a sign of 



CONTRACTOR AND UNION 49 

weakness. This is a fallacy, and the 
men should be encouraged and treated 
as partners in business. 

The power of the men through their 
organizations is tremendous, but is some- 
times frittered away on trifling issues, 
and sometimes in unfair ways, in which 
case they fail to receive public support. 
The more experienced the union is, as 
when formed of skilled workmen, the 
less often are there any serious differ- 
ences to be settled, and by far the larg- 
est proportion of strikes are called by 
the unskilled trades. 

The sympathetic strike is the main 
weapon of the building trade unions, 
and is sometimes resorted to in the in- 
terests of what the labour unions call 
their fair employers. As the term fair 
is sometimes misunderstood a word of 
explanation is in order. In the diction- 
ary of the labour movement the defini- 



50 ETHICS OF CONTRACTING 

tion of a fair employer is "one who em- 
ploys exclusively members of the union, 
pays their scale of wages, and adheres to 
the union rules." One of the fundamen- 
tal aims of the building trades unions is 
to guard against upsetting the estab- 
lished rate of wages and conditions of 
employment, and when a firm of build- 
ers or contractors seek to do work not 
in accordance with the established union 
conditions, a sympathetic strike is some- 
times called of allied trades. It will be 
seen that otherwise firms who pay the 
established rate, and accept the estab- 
lished hours for work are put at a dis- 
advantage. This is one of the unions' 
reasons for the sympathetic strike, and 
from the standpoint of stabilizing busi- 
ness it is well taken, and for this reason, 
at any rate, is justifiable. But the cause 
of unionism is always injured if a sym- 
pathetic strike is unjustly called; and 



CONTRACTOR AND UNION 51 

in the eyes of the public a strike is un- 
just if called solely to force open-shop 
firms to discharge men just because 
these men are not members of a union. 
This injustice is especially felt when 
these firms pay the established union 
rate of wages, and otherwise live up to 
union conditions. 

If unions, so to speak, had never been 
invented it is easily conceivable that a 
condition similar to slavery would exist. 
This of course would be intolerable as 
far as the men are concerned; and also 
the result would be economically detri- 
mental. It is now acknowledged that 
the higher efficiency of free labor in the 
South has much more than offset the 
book value loss due to the emancipation 
of slaves. Conversely, if unions were 
omnipotent and were, without any re- 
straint, able to dominate industry, the 
result would be harmful to themselves 



52 ETHICS OF CONTRACTING 

as well as to others. Autocratic meth- 
ods never succeed in the long run, 
whether attempted by capital or by la- 
bour; and if the analysis of any action 
of a group of men cannot stand the acid 
test of justice, the action is unwise to 
say the least, and had better not be 
taken. 

Instead of trying to coerce firms to 
employ none but union men, it would be 
far better to elevate and improve the 
unions from within, so that no workman 
could afford to or would desire to stay 
out. As has been pointed out, this can 
be brought about by having the "better 
element" in the union take a dominant 
part instead of leaving the unrepresen- 
tative minority to run the business meet- 
ings. 

In certain cities cases have been 
known where the labour unions have 
conspired with their employers for in- 



CONTRACTOR AND UNION S3 

creased wages, in return for which the 
union has undertaken to make it either 
impossible or else ruinously unprofitable 
for outside contractors to enter the local 
market. Doubtless the contractors mak- 
ing such agreements are as much, or 
even more, to blame morally than the 
workmen, but the unions should be 
made to understand that such tactics 
are in the end unprofitable and detri- 
mental to their cause. 

Probably very few members of any 
union feel that they owe any considera- 
tion towards their employer other than 
the giving of a day's work for a day's 
pay. In fact, if a workman appreciates 
this, and conscientiously endeavours to 
earn his wages, he is invariably prized 
by his employer as a real asset. But a 
further obligation exists, and it is only 
fair that the unions should co-operate 
with the contractors in a practical way 



54 ETHICS OF CONTRACTING 

which will divert to the contractor much 
work that is now done by the owner di- 
rect. Such an arrangement, whereby 
the union would undertake to charge a 
higher rate to those classes not regular- 
ly engaged in the business, would, fur- 
thermore, be judged perfectly fair and 
reasonable. The ethical fact is that the 
workmen are indebted to their employer 
to no inconsiderable degree. First of 
all, it is the contractor who stabilizes 
the business and who employs most of 
the men in the trade. It is the contrac- 
tor who makes up the payrolls and who 
has to furnish his workmen their in- 
come promptly and regularly, regard- 
less of the financial strain to which he 
is often put. 

Again, from a broader standpoint, the 
workman is under obligation to his em- 
ployer for his technical training and 
trade education. If it were not for the 



CONTRACTOR AND UNION 55 
opportunity to see and be with skilled 
men, proficient in their calling, the ap- 
prentice would never learn; and, in the 
meanwhile, it is the contractor, his em- 
ployer, who pays for mistakes and for 
the poor work which sometimes has to 
be done over again. Very seldom, if 
ever, is the workman called upon to cor- 
rect his mistakes at his own expense. 

It is not fair to indict all of the unions 
for not co-operating with the contrac- 
tor, as in some trades this is done. But 
a case in which the workmen seem to 
have little regard for the contractor reg- 
ularly engaged in the business is in the 
electric construction and wiring indus- 
try, where the workmen have no com- 
punction in hiring out to any one re- 
gardless of the nature of their tempo- 
rary employer's business. In fact, it is 
well known that during slack times the 
electrician will work for almost any one 



56 ETHICS OF CONTRACTING 

at almost any rate, while the regular 
electric contractor is compelled by the 
union to pay the union scale, often fifty 
per cent, in excess of what the workman 
will accept from outside sources. It 
should be said, however, that this is done 
by individuals contrary to the rules of 
their unions, who by the nature of the 
circumstances find it difficult to prove 
that the workmen are working below 
the standard scale. 

In concluding, it is well to remember, 
whether or not the reader believes in 
trade unions, that they are here to stay 
and that the condition must be met, and 
employers who realize this and have 
treated with the unions in the same spir- 
it in which they have met other business 
problems, have benefited thereby, and 
have also thus tended to stabilize condi- 
tions in their industry. 



THE CONTRACTOR, THE SUP- 
PLY HOUSE AND THE 
MANUFACTURER 

In considering the exploitation, sale 
and distribution of manufactured goods 
to the consuming public it will be gen- 
erally acknowledged that compensation 
should be given to the manufacturer, to 
the jobber or wholesaler, to the retailer 
and the contractor in accordance with 
services rendered. 

Before discussing the inter-relation- 
ships of those several steps in the in- 
dustrial ladder, it may be well to de- 
fine clearly just what is meant by the 
different terms used; and then the 
proper function of each factor men- 
tioned, for it is true that in many in- 

57 



58 ETHICS OF CONTRACTING 

stances these invade the province of the 
other or others. 

Certainly no confusion arises in defin- 
ing the term manufacturer. Sometimes 
he does little but assemble the parts that 
are made elsewhere, but in every in- 
stance it is understood that the manu- 
facturer is the original source of the 
complete manufactured articles. 

By a jobber or wholesaler is generally 
meant a merchant who deals in large 
quantities of goods and distributes them 
for resale. 

The retailer, as such, sells in small 
quantities directly to the public; he is 
never taken as a contractor ; but, as will 
be explained, the contractor is very of- 
ten a retailer. 

Although the ordinary meaning of a 
contractor is one who does work accord- 
ing to a contract, insofar as he is con- 
cerned with the exploitation, sale and 



THE SUPPLY HOUSE 59 

distribution of goods, he is a wholesaler 
if he is a large contractor, but only a 
retailer if he is a small contractor. 

In referring to the different indus- 
trial agents mentioned, it was just stat- 
ed that in many cases they were invad- 
ing the provinces of each other, and thus 
functioning improperly in such in- 
stances. The question that is now pre- 
sented is as to what is proper, and what 
is improper in that sense. 

Obviously, from the economic stand- 
point of what is best for the greatest 
number, any unnecessary paralleling of 
effort or work is wrong. Furthermore, 
respect should be shown for certain cus- 
toms of the trade, as these generally rep- 
resent the evolution of what has been 
tried out in the past, and found to be 
fair and equitable. For instance, it 
may be said without much fear of con- 
tradiction that with the exception taken 



60 ETHICS OF CONTRACTING 

up later, it is bad policy to merge a 
wholesale with a retail business, for if 
the retail specialist is obliged to com- 
pete with the wholesaler who also does 
a retail business, it will be found that 
the former is at a disadvantage, and so 
is not able to give proper service to the 
public. A retailer is put to certain well 
defined and necessary overhead or sell- 
ing expense in keeping a store or 
show room in which the manufacturer's 
goods may be attractively exhibited, ex- 
ploited and sold, and it is certainly un- 
fair for a wholesaler who has only a 
small part of this selling expense to sell 
to the public at the retail price. The 
over-keen retail purchaser who seeks out 
the wholesale house should be made to 
pay the retail price; or, better still, be 
referred to the retailer; and this is the 
accepted practice in most business. 
The exception to this rule is that of 



THE SUPPLY HOUSE 61 

the contractor, or contractor-dealer, as 
he is now often called, because as ex- 
plained, if he is a large contractor he 
sells to the public in wholesale quanti- 
ties; but if a small contractor his bill is 
generally for only a small quantity of 
material; and it is impossible to draw 
the line dividing the large contractor- 
dealer from the small one, especially so 
as at times the small contractor takes a 
comparatively large contract, and the 
large contractor often does small work. 
The important fact that the contrac- 
tor sells labour with supplies or mate- 
rials does not detract in any way from 
his being a merchant, and as such he 
should receive the benefit of trade cus- 
toms and differentials. This is the real 
meaning of the term contractor-dealer, 
as this phrase truly describes his func- 
tions. The firms that are relatively very 
small in number, but who have well-de- 



62 ETHICS OF CONTRACTING 

partmentalized overhead organizations 
and give engineering services in addi- 
tion to selling labour, materials and ap- 
paratus, are generally called contract- 
ing engineers to distinguish them from 
the contractor-dealer ; but their function 
is about the same, only broader in scope. 
Especially in the electrical industry 
does the manufacturer overlook the fact 
that the electrical contractor, whether he 
be of the dealer or engineer class, is ex- 
ploiting, selling and mechanically dis- 
tributing the goods manufactured; and 
is accordingly as much entitled to the 
resale differential in price as is any other 
merchant who sells a manufactured 
product to the public. Indeed, if any 
preference were to be shown it should be 
in favour of the contractor, as his serv- 
ices and intelligence are of a much high- 
er order than those of one who merely 
buys stable articles and sells them again. 



THE SUPPLY HOUSE 63 

The contractor has the added difficulty 
and risk of selling labour with the man- 
ufacturer's product ; moreover in the de- 
velopment of the electrical art and in- 
dustry both the contractor-dealer and 
the contracting engineer play a most im- 
portant part in perfecting and develop- 
ing appliances of various kinds. Here 
again it is most unfair that such im- 
provements be appropriated by the man- 
ufacturer without the giving of some 
commercial recognition to those who 
have worked them out. 

It is becoming more and more the 
tendency of the time to eliminate the 
middle-man when he is not necessary; 
but just because some of this class are 
not much needed, it does not follow that 
they all are superfluous. 

In the doubtful class comes, in the 
electrical trade again at least, the job- 
ber, but the fundamental principles of 



64 ETHICS OF CONTRACTING 

merchandizing of course apply equally- 
well to any division of the building in- 
dustry. 

The electrical jobber is indispensable 
to the contractor-dealer class, and he is 
often most convenient to say the least, 
to the contracting engineer. The log- 
ical way therefore, to compensate the 
jobber, is for the services he renders, and 
this compensation should come from 
those who are benefited thereby. 

It is the manufacturer who differen- 
tiates between the wholesale and the re- 
tail lot; and if the contractor-dealer or 
contracting engineer can buy and have 
shipped direct wholesale quantities, the 
jobber then comes within the category 
of the unnecessary middleman. The 
jobber, however, in many instances and 
in certain kinds of goods is a very neces- 
sary factor, and as such should be recog- 
nized and patronized. 



THE SUPPLY HOUSE 65 

Co-operation in the exploitation, sale 
and distribution of manufactured goods 
is just as important as co-operation in 
any phase of business life. The advan- 
tages and benefits of co-operation are 
many in number and various in kind. 
Without it, between and throughout the 
links of the commercial chain progress 
and development are retarded and 
made difficult; but with it, between the 
manufacturer, supply house and con- 
tractor, an efficient and intelligent cam- 
paign of advertising and publicity is 
easy to plan and to carry out, resulting 
in a larger volume of business and bet- 
ter profits, and also better service to the 
public. 

Without co-operation all sorts of ab- 
solutely unnecessary duplications are 
certain in all sorts of supplies and fit- 
tings. By having half a dozen varieties 
of virtually the same thing on the mar- 



66 ETHICS OF CONTRACTING 

ket instead of one kind, the contractor 
is inconvenienced, the supply house is 
put to an unnecessary expense, and very 
often all the manufacturers of such a 
fitting are losing money. By co-oper- 
ating and standardizing on the best of 
the competitive devices prices will be 
lowered, and at the same time the profits 
of manufacturer, of supply house 
and of contractor will be increased. 
Furthermore, if such a policy were de- 
veloped, the supply house could afford 
always to carry on hand a better sup- 
ply, thus saving the contractor the ex- 
pense and trouble of operating a more 
or less extensive store room. 

One immediate result of such co-oper- 
ation would be the standard number- 
ing, naming and cataloguing of identi- 
cal articles, thus saving no end of con- 
fusion and expense. 

On broader lines, the foundation of 



THE SUPPLY HOUSE 67 

co-operation insofar as the manufactur- 
er, the supply house and the contractor 
are concerned is the non-invasion by any 
one of the field of the other. 

It is a mistake for the manufacturer 
to be a supply house, i.e., sell to the con- 
sumer, who is generally served by the 
supply house or contractor ; but if goods 
are ordered from him direct, he should 
at least give the equivalent of a pro- 
tective trade discount and at the same 
time observe the well recognized differ- 
ential between wholesaler and retailer. 
It would be in a truer spirit of co-oper- 
ation though, if he referred the pur- 
chaser to a good supply house. 

Similarly it is a commercial error for 
the supply house to sell to the consu- 
mer at the same price as to the contract- 
or. Although the supply house may 
have the legal right to sell direct at the 
same price, it is no more commercially 



68 ETHICS OF CONTRACTING 

justified than it ever is for the whole- 
saler to sell at the retail price to the 
customer, who is essentially retail in 
character. The contractor who has 
spent his very best efforts, and very 
likely some of his money (if he had fig- 
ured the contract too closely), natur- 
ally does not think his supply house is 
co-operating if, as soon as the contract 
is finished, he finds that the owner can 
buy all the materials at as low a figure 
as he himself has been paying. Instead 
of finding that his good will has tangible 
value, he sees that it has none, as the 
supply house furnishes the materials for 
all extensions to his original contract, 
and so makes it an inducement for the 
owner to do the work with his own force 
of men. 

Another invasion by many supply 
houses of the field of the contractor is 
the furnishing of materials, on receipt 



THE SUPPLY HOUSE 69 

of an assignment of contract payments, 
to a workman who is without any finan- 
cial resources, thus making it easy for 
any one to start in business without cap- 
ital. The workman is satisfied as he 
thus obtains a little more than the pre- 
vailing rate of wages; but the practice 
is injurious to the industry, as it stimu- 
lates unfair competition by putting ir- 
responsible concerns on a level with 
those who are legitimate contractors. 

Other instances might readily be 
cited showing the ills that follow lack of 
co-operation, but enough have been 
pointed out to show how foolish and 
destructive it always is. 

If the public profited by this preda- 
tory competition, there would at least 
be some advantage gained ; but of course 
it is the public that really suffers the 
most through this lack of commercial 
efficiency. 



70 ETHICS OF CONTRACTING 

It is difficult if not impossible to suc- 
cessfully impress on a business man the 
benefits coming from altruism. He 
must be reached through his bank ac- 
count. In order to show therefore that 
his selfish interests are being furthered 
by altruistic methods, he must be edu- 
cated in the thought that one of the best 
ways to permanently improve his own 
business is to better the fundamental 
conditions of the industry generally — 
and that the quickest and easiest way 
of bringing this about is by co-opera- 
tion. 

One of the most convincing and easy 
ways of advancing this idea is by the 
exchange of helpful suggestions and 
advice. The basis of commerce or trade 
is the exchange of commodities; but 
with each exchange, something of tangi- 
ble value has to be parted with in order 
to acquire some other thing of the same 



THE SUPPLY HOUSE 71 

or similar value. With the exchange of 
ideas, however, it costs absolutely noth- 
ing to the givers, i. e., no pecuniary sac- 
rifice has to be made, but to those who 
receive the good suggestions and help- 
ful ideas the gain is often invaluable. 



THE CONTRACTOR AND HIS 
COMPETITORS 

It seems to be almost second nature 
with most business men to regard a com- 
petitor as an enemy, and any misfortune 
which he meets is considered as their 
gain. This is a most stupid idea and 
wrong economically and ethically. The 
spirit of the times is to co-operate, and 
on no other principle is a healthy, happy 
business existence assured. 

It may sound out of place to suggest 
happiness as an object of business 
ethics, but it is certainly as much to be 
considered in business life as anything 
else. The main point is that it is per- 
fectly consistent with success to be 
helpful to, and friendly with, one's busi- 

72 



HIS COMPETITORS 73 

ness rivals. This does not mean, or in 
any way imply, collusion or illegal com- 
bination. 

Many well-meaning codes of ethics 
applying to inter-relationships of con- 
tractors have been drawn up but have 
always tried to cover too much ground 
to be successful. It is impossible to for- 
mulate detailed procedure in sufficient 
fullness to cover every case. All that 
can be done to advantage is to advocate 
a wise mental and moral attitude and 
friendly in place of unfriendly action. 

A few simple suggestions may, how- 
ever, be helpful. Let a man make 
friends with his competitor. There are 
countless ways in which each can help 
the other. For instance, a man may 
warn his competitor in regard to the 
business methods of certain general con- 
tractors and speculative builders, and 



74 ETHICS OF CONTRACTING 

in return expect a like warning in a 
similar case. 

To illustrate: Certain speculative 
builders have been known to swindle 
their sub-contractors by having them 
estimate on incomplete specifications, 
certain pages being temporarily re- 
moved: but in awarding the contract, 
these pages would be replaced, and the 
contractor requested to sign the com- 
plete specifications in the customary 
manner. The subterfuge often passed 
undiscovered, so that the contractor had 
to furnish the items he had not esti- 
mated on, but which were formally but 
fraudulently included in the contract. 

Now to warn a competitor when to 
look out for such treatment would not 
only be kind but would certainly tend 
to inspire a wish to return the favour, 
besides promoting a cordial and helpful 
relation in general. 



HIS COMPETITORS 75 

In addition to exposing this sort of 
thing, there are many ways in which a 
contractor can help his competitor. In 
general, if one will help the other to 
make money, that other will recipro- 
cate, and both will profit. It never pays 
to hurt a competitor, and to malign one's 
rival in business does more harm to the 
maligner than to the one maligned. 

It is unwise to be suspicious of one's 
competitor. The chances of his having 
done just what has been reported are 
small, and generally the trouble is much 
more due to some misunderstanding, 
rather than to anything positively 
wrong. If a man has reason to think 
he has been shabbily treated, he would 
do better to telephone, or better still, 
call on the suspected man and come to 
a straightforward understanding. Even 
if fair play has been stretched a point 
or two, this is the best way to prevent a 



76 ETHICS OF CONTRACTING 

recurrence of trouble. Many a busi- 
ness feud has smouldered along for 
years, on account of some really trivial 
thing which could have been straight- 
ened out to every one's satisfaction in a 
three minutes' candid and friendly talk. 

In the matter of improved construc- 
tive methods, special tools, keeping of 
costs and administrative improvements, 
it pays to make friendly suggestions, as 
something valuable is almost always 
learned in return. Even if no direct re- 
turn in kind be made at the time, the 
better trade relationship which such ac- 
tion tends to establish will be found suf- 
ficient recompense. 

Business should not be sought by col- 
lusion. Irrespective of illegality, the 
advantage is ephemeral and results in 
inefficiency. Many a contractor who has 
temporarily thriven by this means has 
gone down-hill through the slackness 



HIS COMPETITORS 77 

which results and which brings about in- 
ability to compete successfully. More- 
over, if business be obtained by collu- 
sion there is a reflex action on the effi- 
ciency and morale of the office. The 
practical effect is much the same if a 
firm be given most of its work without 
competition, or on percentage. There is 
no better business tonic than the carry- 
ing out of a contract taken at a close 
price, as it stimulates keenness all 
along the line, both inside and outside 
of the office. 

Prices should not be cut. It is always 
a temptation to reduce a bid when in- 
timation is given that it is too high. In 
a great majority of cases, the general 
contractor or the "very close friend" is 
merely trying to save money, and the 
hint is given to all bidders including the 
one who is already lowest, that a better 
price would be considered. Any en- 



78 ETHICS OF CONTRACTING 

couragement given to this shopping of 
bids tends to result in the general low- 
ering of prices, all at the expense of the 
contractor and at the sacrifice to the 
owner of good work and satisfactory 
service. 

There is, however, a possible excep- 
tion which might be made, and that is 
the case of a contractor who has been 
regularly employed by the owner, or 
for whom the architect expresses a pref- 
erence. In such instances, the con- 
tractor should not be considered as hav- 
ing violated the ethics of the business in 
meeting the lowest price submitted, par- 
ticularly so, if this suggestion does not 
come from him. The owner, of course, 
has the right to award the contract to a 
concern which has served him faithfully, 
and he often will give a preference ; but 
the owner's agent, on account of his 
fiduciary capacity, often feels con- 



HIS COMPETITORS 79 

strained to ask the preferred contractor 
to meet a figure instead of giving him 
the preference he deserves. It is suf- 
ficiently obvious that the probability of 
recompense for good work done 
through the award of further contracts 
must be a very strong incentive to the 
continuance of a contractor's best ef- 
forts, and to deny him the opportunity 
to make a trifling cut so as to take the 
business on the "most favoured nation" 
basis might, in the long run discourage 
good workmanship and faithful service. 

For a long time contractors in the 
same trade, and in the same city or vi- 
cinity have been forming associations 
for mutual welfare and protection ; and 
the movement is continually gaining 
support. w 

The need of working together was 
first felt on account of the solid front 
presented by the workmen in their un- 



80 ETHICS OF CONTRACTING 

ion organizations. Without this incen- 
tive to unity of action, it is doubtful if 
many of the contractors' organizations 
would last. This is partly due to the 
divergent interests of the large, com- 
pared to those of the small contractors, 
to incompatibility of temperaments, 
and to more or less innate suspiciousness 
of one another. Undoubtedly, how- 
ever, these organizations have a bene- 
ficial effect, as a good deal is accom- 
plished, and they pave the way for fur- 
ther co-operative efforts. 

As an instance of this may be pointed 
out the mutual advantages of compar- 
ing the labour costs, this item being the 
most uncertain part of every estimate, 
and mistakes in it the commonest cause 
of losing money on a contract. Every 
time a losing contract is taken, the 
market price for such work is lowered, 
and the contractor who suffers the loss 



HIS COMPETITORS 81 

is forced to make it up on some other 
work, to the detriment of the business 
generally. In the report on Cost Keep- 
ing by the Federal Trade Commission, 
attention is called to the injury to busi- 
ness when work is done at a loss ; and it 
is clearly shown that this results in the 
unfair burdening of other work done 
for other people. It cannot be too 
positively stated that it is always a dis- 
advantage to have a competitor lose 
money, and the more that contractors 
realize this and help each other not to 
lose money, the more will they help 
themselves. 

As one object of this book is to be of 
practical assistance, it will not be out 
of place to show how such unit costs of 
labour may be obtained. The unit cost 
of materials should be based on market 
prices; but the unit costs of labour 
should be founded on the ascertained 



82 ETHICS OF CONTRACTING 

cost of installing units of quantity under 
varying conditions. Market prices for 
materials vary, but the labour costs 
should be virtually constant under the 
same conditions. 

All labour on the job is of course pro- 
ductive, some of it directly, and some 
indirectly productive. The directly pro- 
ductive labour is that which is employed 
in the actual cutting, fitting and install- 
ing of the materials. The indirectly 
productive is of a preparatory nature, 
and includes supervising, laying out the 
work, keeping records, moving mater- 
ials, setting up work benches, and other 
similar work. The cost of the indirectly 
productive labour will be found to cor- 
respond proportionately with the cost 
of the directly productive ; and it should 
be kept separately. 

In arriving at unit costs of produc- 
tive labour, the first step is to divide the 



HIS COMPETITORS 88 

work into its logical mechanical sub-di- 
visions. Each day the amount of la- 
bour is then split up and listed under 
the proper headings, according to the 
time expended. As no one man ever 
works on many different items on the 
same day, this sub-division will be fairly 
accurate and, as there is no incentive to 
favour one item at the expense of an- 
other, the average of these daily sub- 
divisions will be extremely accurate be- 
cause, by the law of averages, the over- 
approximations will be offset and bal- 
anced by the ones that are under-esti- 
mated. 

At the end of the job the totals of 
these sub-divisions of labour costs, ap- 
plied to the quantities of materials to 
which they relate, will give the product- 
ive unit costs of that particular piece of 
work. Of course, the unit costs obtained 
in a small dwelling house, for instance, 



84 ETHICS OF CONTRACTING 

would be different from those deduced 
from factory data; but it will be found 
that a very close resemblance exists in 
all similar classes of construction. 

It is to be especially noted that, while 
the foreman is the logical one to make 
the daily labour sub-divisions, he is not 
expected to, nor should he be allowed to 
keep the tally of the quantity of ma- 
terials used. The daily labour costs are 
footed up when the contract is complet- 
ed by one of the clerical force in the of- 
fice, who also figures from the stock 
records the materials installed, corre- 
sponding to the labour units. 

Other ways and means of co-opera- 
tion might be pointed out, but they are 
all only limited versions of the golden 
rule as applied to business. Virtue is 
said to be its own reward, and some- 
times appears to be the only one ; but, in 
the application of the golden rule to 



HIS COMPETITORS 85 

business, the reward is of a much more 
tangible sort, shown by improved condi- 
tions not otherwise attainable. In no 
better way can these be fostered than 
by cultivating a business acquaintance 
and friendship with one's competitors, 
so as to make possible and easy the in- 
ter-change of mutually helpful ideas 
and suggestions. 



THE CONTRACTOR AND HIS 
STAFF 

No matter whether the contractor's of- 
fice staff consists of only one assistant 
or whether it is departmentalized and 
has a great many subordinates, the same 
underlying principles of administration 
apply. 

It is difficult to lay down in specific 
terms rules or maxims which depend for 
their success on the spirit in which they 
are applied. But it is obvious that little 
can be more desirable than an esprit de 
corps in the members of the staff, and 
while this may exist in the absence of 
a set policy, it is certain that the right 
policy tends to engender it. 

It never pays to drive, for the person 

86 



CONTRACTOR— HIS STAFF 87 

driven will only go straight, and up to 
speed, as long as the reins are in hand. 
In other words, it takes two to do one 
man's work ; the one who is being pushed 
or driven and the one who is doing the 
pushing or driving; and as soon as the 
pressure is relieved the work halts or 
stops. It is far better to inculcate in- 
itiative in the worker and the desire to 
work; and this can better be brought 
about by an attitude of helpfulness, ap- 
preciation and encouragement, than by 
one of scolding, criticising and fault- 
finding. 

Every one makes mistakes, and the 
man who confesses to an error should 
be commended for the confession. By 
giving advice that will guard against 
the repetition of the mistake, or the 
making of a similar one, the error is 
capitalized and becomes of value. 
Otherwise, if the person at fault is 



88 ETHICS OF CONTRACTING 

merely condemned, on the next occasion 
the chances are that the slip will be 
covered up and permanent harm done. 
The contractor's organization should 
be taught that the best way to advertise 
is to do good work ; and, as all contract- 
ors of experience will say, one job al- 
ways leads to another. This most im- 
portant channel to new business is 
clogged and stopped up if the contract 
is poorly executed, but if it is well done 
and satisfaction given, the channel is 
broadened and deepened, and all sorts 
of inquiries, and invitations to submit 
figures, come in. With this end in view, 
therefore, the making of all possible 
profit out of the work in hand should 
be subordinated to building up a repu- 
tation to help the future. And if there 
is a choice of methods or materials, and 
any doubt arises as to which is to be used 
or followed, it is a safe rule to be guided 



CONTRACTOR— HIS STAFF 89 

by the owner's best interests rather than 
only by the relative expense. 

It is a foolish and narrow minded out- 
look which impels some employes not 
to tell their subordinates all they know 
for fear that they will become too good. 
That the very reverse of any such self- 
ish policy is the only intelligent one to 
follow is clearly brought out by 
Charles A. Stone of the firm of Stone 
& Webster, and President of the Ameri- 
can International Corporation, in the 
following extract: 

"We teach every man in our employ/' he 
says, "that he must make it easy for us to pro- 
mote him, and the best way he can do this is by 
fitting some one to fill his own job. Every man 
in our organization must train an alternate. 
Thus promotions cannot disrupt our organiza- 
tion. 

"We believe in large salaries and pay many. 
We also have a profit-sharing plan which has 
charged the men with ambitions and paid them 
well. Nine tenths of employers make the mis- 



90 ETHICS OF CONTRACTING 

take of looking upon men as cogs in a machine, 
and expecting those cogs to remain in the spot in 
which they are placed year after year until they 
are worn out. By using a man permanently in 
exactly the same spot they imagine they are 
receiving the maximum amount of efficiency. 

"That has not been our system. We believe 
in promotions. We want every man to feel that 
we want him to advance to the very limit of his 
capacity, and in cases where an unusually able 
man is offered a bigger opportunity outside we 
gladly urge him to take it. 

"Occasionally, but rarely, we encounter sel- 
fishness in carrying out our policy of having two 
men trained for every job in the organization. 
Some fellows are afraid to organize themselves 
out of a job. They fear that if somebody at 
their elbow is capable of filling their shoes 
their places will not be so secure. This, of 
course, is a very narrow view. We convince 
each man that we want to promote him, but that 
it will be difficult to do so unless he has paved 
the way by training a subordinate to step into 
his place." 

As Mr. Stone points out, team work 
is absolutely essential to any real pro- 
gramme of development of an organi- 
zation, and it should always be one of 



CONTRACTOR— HIS STAFF 91 

the uppermost points to be borne in 
mind by the entire staff. 

One of the most practical means of 
getting team work out of an organiza- 
tion is a profit-sharing plan. Not only 
is this a very fair way of stimulating 
and reimbursing the administrative 
staff, but it is the best and safest way 
of preventing the heads of departments 
from leaving their employer, either to 
join forces with some other concern, or 
perhaps to capitalize the knowledge and 
experience gained and so create a new 
and oftentimes dangerous rival firm. 

There are various profit-sharing plans 
in successful operation, adapted to the 
special needs of different organizations. 
Of course they all depend on the prin- 
ciple of distribution of profits in more 
or less close relation to length of ser- 
vice, personal efficiency and position in 
the business. 



SUGGESTED CODES OF PRAC- 
TICE FOR THE CONTRACTOR 

A great deal of thought and study has 
been given to codes of practice and 
codes of ethics, but they are apt to be 
lost sight of, even if formally adopted 
by contractors' associations. They are 
thus ineffective, not through intentional 
neglect, but because contractors forget 
having ever subscribed to them. And 
this forgetfulness seems very natural 
when one reflects that in practice no 
reference is generally made to codes of 
this nature by contractors. 

Furthermore, confusion arises in es- 
tablishing codes by failure to empha- 
size the differences between the rela- 
tionships of contractor to engineer, of 

92 



CODES OF PRACTICE 93 

contractor to owner or to general con- 
tractor, and of contractor to supply 
house or manufacturer. 

The only way to make such codes ef- 
fective is to have the individual con- 
tractor refer to them specifically on his 
letterhead, by some such legend as fol- 
lows: 

"All proposals are made subject to the stand- 
ard Codes of Practice recommended by " 

(Giving the name of the association or body 
supporting the code). 

Great care must be taken not to adopt 
any articles which are unfair or in any 
way illegal; by so doing the effective 
value of the entire code will be jeopar- 
dized. 

Although it is impossible to imagine 
anything wrong in the agreement on a 
code of practice by an association of 
business men, provided the code be fair 



94 ETHICS OF CONTRACTING 

and open, some lawyers of the highest 
standing will not let their clients agree 
to anything to be done in concert with 
other members of the trade, for fear of 
the Sherman law. 

In order to avoid any possibility of 
infringing the laws in regard to restraint 
of trade it is most important not to at- 
tempt to restrain the members collect- 
ively, but merely to recommend to the 
individuals. Therefore any such code 
should be preceded by a preamble sub- 
stantially as follows: 

"The following codes of principles and prac- 
tice are recommended to owners, architects, con- 
sulting engineers, general contractors, sub-con- 
tractors, manufacturers and supply houses, as 
embodying a co-operative policy beneficial to all 
concerned and which will be a step towards 
higher efficiency, greater economy and better 
service. The association does not attempt di- 
rectly or indirectly to impose these codes on 
any one, but respectfully submits same for ap- 
proval." 



CODES OF PRACTICE 95 

All contractors should then openly 
adopt the codes, because not only are 
they fair, but also because it would be 
found that by so doing misunderstand- 
ings, disputes and even litigation would 
be avoided. 

PROFESSIONAL CODE OF PRACTICE 

The professional code of practice 
might be very simply summarized by 
the prohibition of purchase of supplies 
and apparatus by engineers, and the 
prohibition of drawing up competitive 
plans and specifications by contractors. 

These broad principles have to be 
modified where the contractor cannot 
purchase as advantageously as the en- 
gineer, or where the architect or engi- 
neers cannot or will not prepare the 
proper plans and specifications. 

If, under these circumstances, the 
contractor is called upon to lay out the 



96 ETHICS OF CONTRACTING 

plans and write the technical descrip- 
tion of the work, the functions of the 
apparatus, etc., he should either be 
given the work without competition on 
a time and material basis with the terms 
expressly understood in advance; or if 
competitive bids be insisted on by the 
owner, it should be understood and 
agreed that the contractor be paid the 
regular engineering fee for his services. 
This of course, would discourage the 
practice of having contractors do engi- 
neering, as in such a case the owner 
would prefer, as he should do, to em- 
ploy a professional consulting engineer. 

CODE OF PRACTICE AS APPLIED TO PUR- 
CHASING 

It is not justifiable or fair to the con- 
tractor who maintains an organization 
for the exploitation, sale and installa- 
tion of many special materials, devices 



CODES OF PRACTICE 97 

and fittings, and by whose efforts and 
organization these goods are distributed, 
to have the manufacturer, jobber or con- 
sumer derive the benefit of this organi- 
zation without some commercial com- 
pensation being allowed. As explained 
in the chapter on the contractor's re- 
lationship with the supply house, if the 
manufacturer or jobber sells direct to 
the consumer at the same price as to 
the contractor, it is an unfair and pred- 
atory sort of competition. 

A simple method of correcting this 
is the establishment of a differential in 
price, or what is commonly known as a 
trade discount. 

In order, therefore, that the proper 
inter-relationship between manufactur- 
er, jobber, contractor and consumer be 
conserved, and the exploitation, sale and 
distribution of these special supplies be 
most efficiently and economically car- 



98 ETHICS OF CONTRACTING 

ried out, it is recommended that price 
differentials be adopted between manu- 
facturer, jobber and contractor, so that 
the regular commercial channel, with 
certain exceptions, will be from manu- 
facturer to jobber, then to the contrac- 
tor and then to the consumer. It is 
recognized in the electric industry, for 
instance, that this does not apply in the 
case of apparatus for central stations, as 
neither the jobber nor the contractor 
has any service to offer for which either 
should be paid. Nor does the rule 
apply in the case of the manufac- 
turer who buys electrical supplies 
which form a part of goods or ma- 
chinery to be resold. The automo- 
bile maker, for instance, who requires 
batteries, wire, etc., should not be ex- 
pected to purchase through the jobber 
or contractor who is in no way con- 
cerned with the exploitation, sale or dis- 



CODES OF PRACTICE 99 

tribution of automobiles. Even in the 
case of electric stoves, the manufacturer 
of same should be encouraged to buy 
switches, wire, etc., direct from the man- 
ufacturer, as the jobber and contractor 
will, presumably, make their profit in 
selling the electric stoves. Other ex- 
ceptions are in relation to apparatus, 
articles specially manufactured to order 
from drawings, and standard articles 
sold in bulk which are normally shipped 
direct from the factory to where they 
are to be used. 

But with all these exceptions, there 
still remains a tremendous volume of 
supplies and fittings which should be 
handled by the jobber, as it only is 
through this means that the public can 
be served most quickly, with the least 
trouble, and at the smallest expense. 

Just what these trade differentials in 
price should be, this book does not at- 



100 ETHICS OF CONTRACTING 

tempt to say in detail; but, in general, 
it recommends that they be regulated 
in accordance with services rendered. 
One way of determining the value of 
such services would be based on the av- 
erage overhead expenses, respectively, 
of jobber and contractor. 

For instance, if the average overhead 
expense of the jobber were 10 per cent, 
and that of the contractor 15 per cent., 
the consumer should pay approximately 
these amounts plus a fair amount for 
profit beyond the price at which the 
manufacturer sells the jobber. 

It will be seen from the above that 
this code of practice as applied to the 
buying of supplies resolves itself into 
the policy of the contractor's confining 
his purchases, as far as possible, to those 
jobbers and manufacturers who allow 
the price differentials as outlined. All 
that is necessary to bring this about is a 



CODES OF PRACTICE 101 

campaign of education by means of 
which it would be shown that co-opera- 
tion along the lines as explained would 
be a positive benefit to every one inter- 
ested. 

If, after such propaganda had been 
launched and generally accepted, any 
jobber or manufacturer would or could 
not be made to see the fairness and jus- 
tice of doing business in the regular 
way, he should be ostracized commer- 
cially in the same way that people are 
treated socially if they lack the good 
breeding or taste that are the attributes 
of companionable human beings. 

CODE OF PRACTICE AS APPLIED TO OB- 
TAINING BUSINESS 

The following code as submitted here- 
with is self-explanatory; and many of 
these articles, substantially as given, 



102 ETHICS OF CONTRACTING 

have been in general practice in many 
localities for a long time. 

I. Contractors will submit bids upon 
condition that a full set of plans, speci- 
fications and general conditions be 
placed at their disposal for a reasonable 
time, free of cost, for use in their of- 
fice for the purpose of preparing an 
estimate. If for any reason the con- 
tractor is not so supplied with plans 
and specifications, he shall charge a fee 
for making his estimate, to cover the 
cost and extra risk involved. 

II. The standard form of contract of 
the American Institute of Architects is 
to be the basis used for all bids, unless 
otherwise decided by agreement. 

III. The contractor shall be paid 
monthly in cash at least 85 per cent, of 
the value of the materials delivered and 
of the labour performed. 

IV. Each contract shall provide for 



CODES OF PRACTICE 103 

prompt payment, and require final in- 
spection and payment in full within 
thirty days of the completion of the 
work covered by said contract, regard- 
less of the final settlement for the build- 
ing as a whole, or for the work of any 
other trade. 

V. Differences arising between the 
contractor and other parties on a con- 
tract are to be subject to, and settled 
by, arbitration. 

VI. The contractor shall not be re- 
sponsible for loss due to any delay in 
the execution of the contract, when such 
delay is in no way his fault. The time 
lost on account of strikes, lockouts, fire, 
washouts, delays by transportation com- 
panies, or by any other causes over 
which the contractor has no control, will 
be added to the time allowed for com- 
pletion of the work covered by the con- 
tract. 



104 ETHICS OF CONTRACTING 

VII. The contractor will not include 
in his estimate any charges for surety 
bonds or insurance not required by law ; 
or any general charges for cleaning, re- 
moval of rubbish, patching or repairing 
of plaster, brick or terra cotta; for 
breaking of glass, for office or telephone 
service, for water, light, heat, fire-insur- 
ance, scaffolding, use of general gang- 
way, of hoisting apparatus, or of en- 
closures or stairs; or any other similar 
charges, unless agreed upon in advance. 

VIII. The contractor shall not be 
required to cut any work except his own, 
and shall not be required to cut, alter 
or move even his own work if the need 
arises from any cause for which he is not 
responsible. 

IX. Unless specifically provided for 
in the contract, an extra charge will be 
made for any special finish or variation 
from the standard materials. By 



CODES OF PRACTICE 105 

"standard materials" is meant standard 
materials as regularly listed by the man- 
ufacturer whose product is specified. 

X. Changes in or additions to con- 
tract plans or specifications shall be 
made the subject of estimate, or shall 
be based on the time and materials in- 
volved. 

XI. If the regular and normal prog- 
ress of the work is held up on account 
of extras, or changes, or other causes 
over which the contractor has no con- 
trol, an interference or interruption 
charge shall be made, depending on the 
extent of the interference or interrup- 
tion. 

XII. A fair price shall be charged 
for drafting or engineering services 
when the contractor is called upon to 
render such services. 

XIII. The contractor shall not in- 
clude temporary work of any kind in 



106 ETHICS OF CONTRACTING 

his estimate unless the quantities are 
distinctly stated. 

XIV. Unless specifically otherwise 
stated "Cost" shall be understood to 
mean cost of material and labour, plus 
the average administrative or overhead 
expense. 

In some localities where special con- 
ditions exist, special articles may be 
needed, but the code as given above will 
be found to cover what is generally nec- 
essary. 

Reference is made in Art. I. to mak- 
ing a charge for estimating, but as this 
is not customary, insistence might be 
undesirable lest it provoke too much 
criticism and opposition. But the sug- 
gestion is certainly in the line of ap- 
proach to justice and is submitted in 
the hope that the time will come when 
all estimates are paid for. 

Another reason for contractors advo- 



CODES OF PRACTICE 107 

eating a reasonable charge for estimat- 
ing is that it would tend to discourage 
asking for an unreasonable number of 
bids. There would, of course, be no ob- 
jection to the understanding that the 
contractor who is awarded a contract 
should not be paid extra for his esti- 
mate, as the cost of figuring should be 
included in the estimate of the cost of 
the work. In any event the public ulti- 
mately pays for the cost of estimating, 
and if contractors charged for the ser- 
vice, the cost would be borne directly 
by those receiving the benefit, instead 
of having it averaged over the whole 
community. 



THE CO-OPERATIVE SECRE- 
TARY 

It would be difficult to imagine any 
commercial work more interesting than 
serving as the professional secretary of 
an association of keen, ambitious and 
intelligent contractors. The position 
could be just as fine as a man might 
choose to make it; his opportunities to 
inspire right feeling and to help in the 
development of practical insight and ca- 
pacity would be endless. He would find 
a very wide field of usefulness, and the 
intelligent exercise of his functions 
would save the cost of his salary and 
expenses many times over. It is not an 
exaggeration to say that it would lie 
well within his power, by eliminating 

108 



CO-OPERATIVE SECRETARY 109 

waste and saving mistakes, to increase 
profits five to ten per cent, of the amount 
of business done by the members of his 
association, or their net profits from 
fifty to one hundred per cent. 

His policies, acts and functions should 
of course be such as always to bear the 
test of the most open publicity. Fur- 
thermore, he should confer with archi- 
tects, engineers and builders with a view 
to obtaining their moral and practical 
support, and should do all in his power 
to elevate and improve in every equit- 
able way the business of the contractor. 

Acting, as he would, with no selfish 
motives, his influence would have great 
weight. Indeed, if the position were 
filled by a man of the right moral and 
intellectual calibre, his power might go 
to any reasonable limit, as he would be 
supported by all members of the trade. 

His functions and duties should em- 



110 ETHICS OF CONTRACTING 

brace more especially those mentioned 
as follows, which, for the purpose of 
reference, are summarized under head- 
ings: 

Contract Costs. Determining the 
direct and indirect cost of doing dif- 
ferent kinds of work under various con- 
ditions. 

Cost of Changes. Determining the 
direct and indirect cost of making 
changes and doing extra work. 

Selling Prices. Determining the fair 
price to be asked for work, whether on 
a unit basis, cost plus a fee, or on per- 
centage. 

Overhead Expenses. Defining and 
determining overhead expenses. 

Price Cutting. Discountenancing, 
by the method of open prices, the cut- 
ting of bids. 

Legislation. Watching municipal 
and state legislation. 



CO-OPERATIVE SECRETARY 111 

Unfair Practices. Reporting unfair 
practices, whether of general contrac- 
tors, architects or engineers, or of mem- 
bers of his Association. 

Promoting Efficiency. Gathering 
and disseminating information and ideas 
as to office management, estimating, 
bookkeeping, advertising, office forms, 
and, in general, promoting efficiency 
and eliminating waste. 

Union Intermediary. Acting as rep- 
resentative of the Association in deal- 
ing with the Union, but not committing 
the Association in any way without au- 
thority. 

Professional Relationships. Using 
his influence in restraining the contrac- 
tor from doing engineering and in re- 
straining the engineer from doing con- 
tracting. 

Trade Relationships. Co-ordinating 
the commercial relationships of the 



112 ETHICS OF CONTRACTING 

manufacturer, the central station, the 
jobber, the retailer and the contractor. 

Standardization. Standardizing the 
specifications; and promoting the prac- 
tice of standardizing and making fit- 
tings interchangeable. 

Arbitrator. Arbitrating disputes 
between members, and between mem- 
bers and architects, engineers or build- 
ers. 

It is evident from the study of this 
list of functions that the secretary can- 
not be held down to any hard and fast 
lines. A great deal of latitude should 
be permitted him in carrying out the 
various provisions; and the successful 
fulfilment of his duties would depend 
on the co-operation of the members in 
spirit, as well as their giving of practi- 
cal aid and advice. 

His work would be of an educational 
nature, and confined to making helpful 



CO-OPERATIVE SECRETARY 113 

suggestions, rather than in any sense 
dictating to firms or individuals how 
their business should be run. 

Without further explanation, the pro- 
gramme as outlined might seem vision- 
ary, Utopian and impractical; but, this 
is not the case, as will be seen by the an- 
alysis which follows: 

Contract Costs. It is not claimed 
that the cost of doing different kinds of 
construction work under different con- 
ditions can be exactly determined, but 
there is no doubt about the possibility of 
approximating the costs very closely. 
The larger part of estimating is done 
by very loose and unscientific methods ; 
figures are generally based on limited 
instead of broad experience, and many 
special factors are often left out of con- 
sideration which are of the very greatest 
importance. 

The listing of materials from plans 



114 ETHICS OF CONTRACTING 

can hardly be classed as estimating; this 
is merely the measuring of quantities, 
and it is assumed that all estimates of 
material are based on actual quantities 
and figured at market prices. 

Skill, experience and judgment are 
needed when the question to be deter- 
mined is the proper amount of labour, 
and always will be required to some ex* 
tent, depending on the amount of data 
available. By itemizing the labour cost 
on a scientific unit basis, accurate data 
may be obtained, safer to rely on than 
the judgment of the estimator. 

In the contributing of data, the help 
of all members of the association should 
be given, and it should be given freely 
since this is to the manifest advantage 
of all. This mutual help and co-opera- 
tion is the fundamental idea underlying 
every contractors' association and, al- 
though to some persons it may seem 



CO-OPERATIVE SECRETARY 115 

poor policy to give information helpful 
to one's competitors, they will change 
their opinion as soon as the advantages 
of co-operation are made plain. This is 
one of the initial duties of the secretary 
— the education of the members in the 
practical advantages as well as the ethi- 
cal claims of co-operation. 

In the collection of data on costs, the 
secretary should, in conference with the 
leading architects, consulting engineers 
and contractors, agree upon a standard 
set of units to be kept with reference to 
the mechanical sub-divisions of the 
work, as well as with reference to the 
classes of building construction. The 
various members of the contractors' as- 
sociation would then receive forms to 
be used, and the secretary would in- 
struct them in regard to the system em- 
ployed. It is so simple that no difficulty 
would be experienced, and the slight 



116 ETHICS OF CONTRACTING 

amount of trouble and expense to each 
contractor would be amply repaid by 
the increased efficiency of his working 
force. The fact that a workman knows 
a written record is kept of his work will 
keep him up to a higher standard and 
will tend not only to increase the profits 
of the business, but the wages of the 
workman as well. 

These costs would be sent to the sec- 
retary who, in conjunction with archi- 
tects and engineers, would tabulate the 
results. As this information would be 
of inestimable value to all architects and 
engineers, they would no doubt show 
their interest by giving their moral and 
practical support. 

It should be borne in mind that meet- 
ings to determine the unit costs to be 
used in estimating should be of the most 
public character, with all minutes, dis- 
cussions and data open to inspection. 



CO-OPERATIVE SECRETARY 117 

If the slightest veil of secrecy or mis- 
representation were tolerated the con- 
fidence of the architects would be for- 
feited ; and the whole idea of maintain- 
ing and obtaining fair prices jeopar- 
dized. 

In a similar manner the fair indirect 
cost or average overhead expense allow- 
able on different kinds of contracts 
would be obtained and scheduled. The 
contractors would be supposed to show 
their original office records and books of 
account if requested, and no difficulty 
would be experienced in having a rea- 
sonable percentage adopted, based on a 
sliding scale of contract amounts. 

If overhead costs were kept on a uni- 
form basis the results would surprise 
not only the average architect, but also 
almost every contractor, who seldom 
realizes how high his overhead percent- 
age is. 



118 ETHICS OF CONTRACTING 

Costs of Changes. The keeping of 
costs of making changes and of doing 
extra work is more difficult than the 
keeping of ordinary contract costs. 
There is, of course, nothing obscure in 
the direct expense involved, but indi- 
rect factors always exist and are often 
greater in amount than the actual la- 
bour and materials involved. This fea- 
ture is mentioned in the chapter dealing 
with the contractor and the architect. 

On account of the many variable fea- 
tures entering into the cost of changing 
work already installed, it is impossible 
to formulate any rule that will apply 
generally. In making a schedule of 
prices for straight additional work, lib- 
eral increases must be made in the regu- 
lar contract units, as otherwise all such 
extras will entail a loss rather than a 
profit. 

In most cases the contract unit prices 



CO-OPERATIVE SECRETARY 119 

may be taken as a basis for the cost of 
changes, with a percentage added to 
cover the interference charge, the extra 
supervision required, any exceptional 
constructional difficulties, etc. 

There will, of course, be special items 
requiring special estimates, but these 
will be comparatively few in number. 

The advantages of doing work on a 
unit basis are: the flexibility attained, 
the fact that the contractor's recom- 
pense is based on measured quantities 
rather than on any one's opinion as to 
the elements involved, and, last, but 
not least, the elimination of any temp- 
tation of the contractor to slacken his 
energy and efficiency in the prosecution 
of the work, as sometimes happens with 
percentage work. 

Selling Prices. In standardizing 
unit selling prices, whether they be for 
the purpose of determining the origi- 



120 ETHICS OF CONTRACTING 

nal contract, or the amount of the sup- 
plementary work, it is most essential 
that representative architects and con- 
sulting engineers be consulted. They 
should be offered open and free access 
to the records upon which selling prices 
are based, and at least their tacit ap- 
proval obtained. It is not necessary 
that any formal written approval be 
given, as no one group of architects 
would be legally authorized to commit 
others to the expenditure of clients' 
money; but it is necessary that all ar- 
chitects, or other persons in a fiduciary 
capacity, be shown and convinced that 
the suggested scale of prices is on a 
perfectly fair and equitable basis, both 
as to the buyer and the seller. 

Of course, there will be objectors to 
any such price recommendations be- 
cause there always have been, and al- 
ways will be, certain individuals whose 



CO-OPERATIVE SECRETARY 121 

main object is to find some unwary con- 
tractor who will, through over-anxious- 
ness or error, take work at less than 
cost. The protests of those in their class 
may, and should be, disregarded, and 
to this no reasonable person will object. 

As the market conditions change, or 
the rate of wages rises or falls, the scale 
of prices should be revised accordingly ; 
and, within practical limits, arrange- 
ments should be made so that any au- 
thorized agent representing building in- 
terests, or even individuals who are 
building, might be present at the price 
conferences, and have a voice in the dis- 
cussion. 

It is a great mistake to assume that 
price regulation eliminates competition. 
It is perfectly true that the bids sub- 
mitted for new work will run much more 
evenly than when indiscriminate and 
unintelligent competition prevails. In- 



122 ETHICS OF CONTRACTING 

stead of the figures varying all the way 
from 10 per cent, or 15 per cent, lower 
than they should be, to 30 per cent, or 
40 per cent, over what is right, under 
price regulation they will all come with- 
in very narrow limits, with a fair, and 
only a fair, profit included. Theoreti- 
cally all prices would be identical but, 
of course, practically, no two firms 
would bid just the same. With the bids 
of various firms running very evenly, 
there would not be the same financial 
incentive for the owner to select the 
lowest bid regardless of all else. Invi- 
tations to bid would not only say that 
the owner reserved the right to reject 
any or all figures submitted, but would 
mean this; and the award would be 
made on broad general lines, instead of 
narrow financial ones. In other words, 
the contractor who did the best work, 
who gave the best service, who was the 



CO-OPERATIVE SECRETARY 123 

best situated to carry out the contract, 
and who would in all probability have 
it done by the time required, would be 
given the award. 

This method, instead of discouraging 
competition, would stimulate it; and, 
moreover, along lines that are fair and 
just. 

The only feature of such a scheme 
that would be inimical to its success, 
would be having prices that were too 
high. The scale must be fair, and 
should be so close that the inefficient and 
careless contractor would be penalized 
by not making a profit, or even by suf- 
fering a loss. 

Exactly what would be considered a 
justifiable profit would depend on the 
scope and quantity of the work. It 
would not be far out of the way to base 
the selling prices on the assumption 
that the contractor is entitled to a ten 



124 ETHICS OF CONTRACTING 

per cent, premium over the cost, in re- 
turn for his skill and ability, and use 
of capital, plant and organization. By 
cost is meant not only the materials and 
labour consumed in the work, but also 
a fair proportionate amount to be al- 
lowed for the overhead or administra- 
tive cost ; this, of course, being as much 
a part of the real total cost as the 
amount of the payrolls and the sum of 
the bills for materials. 

If this scheme were in operation, that 
old bone of contention, the taking of 
extra work on another contractor's job, 
would be automatically avoided, and all 
such extra work would go to the con- 
tractor originally employed, unless his 
work and services had been unsatisfac- 
tory. 

Overhead 'Expenses. Probably not 
one contractor in a hundred, certainly 
only the very smallest minority, has an 



CO-OPERATIVE SECRETARY 125 

intelligent conception of just what con- 
stitutes overhead expense. Even those 
who keep the most careful books of ac- 
count do not realize that the overhead 
or administrative expense varies to a 
wide degree with work of different 
kinds and size. 

It is also certain that if any conces- 
sion is made in the price the overhead 
item is called upon to bear it all, and 
more frequently than not it is stricken 
entirely from the estimate. As a mat- 
ter of fact, it is the most tangible of any 
part of the cost, because although la- 
bour may be saved and materials bought 
at a less figure than allowed, the over- 
head is always present and cannot be 
eliminated. If any contract is denied 
its fair proportion of administrative at- 
tention, the result is the losing of a 
pound to save a penny. As the Federal 
Trade Commission has abundantly 



126 ETHICS OF CONTRACTING 

proved, the neglect to allow for over- 
head expenses has been the cause of 
more business failures than any other 
one thing. 

The only practical way to avoid this 
is by education, and the method is very 
simple. The secretary should first have 
his association define which items of ex- 
pense make up the overhead, after which 
it is simply a matter of bookkeeping. 

Very careful inquiry and investiga- 
tion have shown that the average over- 
head of the mechanical trades, such as 
electric work, heating, ventilating and 
plumbing, is, on the average, over rather 
than under twenty per cent., and it is 
obvious that any contractor doing work 
at net cost plus ten per cent, as is so 
common, either cheats himself, or over- 
charges on the cost, thus cheating his 
employer. 

Price Cutting. Probably sub-con- 



CO-OPERATIVE SECRETARY 127 

tractors lose more money by blind cut- 
ting of prices than by any other one 
cause. It often happens that the cut is 
unnecessarjr, and that if it had not been 
made the contract would have been 
awarded to the same man at his original 
price; but in any event, it encourages 
the general contractor to call for cuts 
and tends to lower prices generally. 

In many cities the custom is most 
common; the general contractors often 
submit their estimate on the entire work 
at the sum, or at less than the sum of 
the individual bids, trusting for profit, 
to the well-known tendency of the sub- 
contractors to cut, and to keep on cut- 
ting. 

Of course, the sub-contractors who 
permit and encourage this are equally 
responsible, but the time has come when 
this should and must cease, or many 



128 ETHICS OF CONTRACTING 

well established firms will go out of 
business. 

Whenever a firm fails it is to be re- 
membered that the commercial poten- 
tial energy stored up through the de- 
velopment and evolution of the organi- 
zation is wasted, and that it is just as 
much a permanent economic loss to the 
community as is the case if a building 
burns up or a train is wrecked. 

Some concerns do not deserve to suc- 
ceed, on account of their poor business 
methods, poor work, or their dishonesty; 
but it is a fact that many a worthy com- 
pany meets disaster largely through in- 
ability to obtain a fair price for doing 
good work. 

In the prevention of price cutting the 
professional secretary can do as much 
good as in any other way; if not more. 
In fact, it would well pay many an em- 
ployers' organization to retain a secre- 



CO-OPERATIVE SECRETARY 129 

tary for this, if for no other purpose. 

It might be asked, why is it necessary 
to have a secretary for such a simple 
function? Why cannot the contractors 
merely agree not to cut, and not bother 
about having a secretary? — Unfortu- 
nately, the habit is too ingrained, and 
contractors as a class are too suspicious 
of one another. The many other ways, 
however, in which the secretary can be 
of use make his position invaluable, even 
disregarding this especial duty of pre- 
venting the cutting of prices. 

Coming now to the method of pre- 
venting price cutting, how can this best 
be done? The method is simple and is 
based fundamentally, not in endeavour- 
ing to depend on the members of the as- 
sociations committing themselves as to 
their policies and actions, but by mak- 
ing them see by the broad light of open 
publicity the foolishness of cutting 



130 ETHICS OF CONTRACTING 

prices. This is effected by sending to 
the secretary a copy of every proposal 
submitted, whether the original bid or 
a subsequent one. 

Whenever any contract is finally 
awarded the secretary is notified by the 
successful firm; and he then sends to 
all who have competed, but to no one 
else, a copy of all bids that were sub- 
mitted, including a copy of any revisions 
that may have been made. Further- 
more, at the monthly meeting of the as- 
sociation the secretary will report all 
cases where revised bids have been put 
in. 

It should, of course, be understood 
and agreed that all general contractors 
be formally advised that the associa- 
tion discountenances the cutting of 
prices, and that, as soon as every con- 
tract is let, all bidders will be informed 
what all the other prices were. 



CO-OPERATIVE SECRETARY 1S1 

The advantages of this whole proce- 
dure are: (1) that it is absolutely fair; 
(2) there cannot be a question as to its 
legality, as the comparison of prices is 
not made until after the bids have been 
sent in; (3) on account of its publicity 
feature, the general contractor could 
not afford to misrepresent the facts, 
knowing that, if he did, all his bidders in 
every instance would promptly be in- 
formed; and (4) all sub-contractors 
would be similarly deterred from cut- 
ting by the knowledge that the fact 
would be reported in open meeting. 

Some people contend that prices 
never should be cut, and there are many 
supporters of this idea. If this is the 
prevailing opinion, the .association of 
contractors may so recommend; and 
even if no penalty be attached, it is 
doubtful if any contractor would cut, 
knowing that if he did, all his fellow 



132 ETHICS OF CONTRACTING 

members would be informed of it at the 
next open meeting. 

A great many business men of high 
principles believe, however, that if any 
contractor has a real personal influence, 
and if the owner, or whoever it is who 
has the letting of the contract, prefers 
him at even figures, he should be al- 
lowed to meet the price. As already 
pointed out, this is perfectly fair in the 
long run, and in the opinion of the 
writer no attempt should be made to do 
away with the privilege. To decline the 
opportunity would be considered by the 
person offering it to the contractor most 
ungrateful, especially if the difference 
in price were small, and it might hurt 
a friendship of long standing. 

The question should be put to vote 
and, if passed, no stigma would be at- 
tached to a contractor who had met a 
market price. If the general contrac- 



CO-OPERATIVE SECRETARY 133 

tors thus knew that they could not make 
any saving in the bids submitted, the 
award would always go to the lowest 
bidder, unless one of those not low had 
a real claim to the job. 

Legislation. In following proposed 
legislation that would particularly af- 
fect the business of his association, the 
secretary would not have time to ac- 
complish much personally. It would 
be his chief duty to report bills that had 
been, or were to be, introduced, so that 
the association could actively support or 
oppose the measures as they saw fit. 

The labour unions, through special at- 
torneys, watch all proposed legislation 
very closely, and the contractors' asso- 
ciations could well afford to imitate 
them. 

There are great possibilities of con- 
structive legislation for the benefit of 
contractors, and many of the best laws 



134 ETHICS OF CONTRACTING 

have been made at the instance of con- 
tractors' associations. 

Unfair Practices. As has been pre- 
viously pointed out, some general con- 
tractors resort to all sorts of mean tricks 
to defraud their sub-contractors. As a 
general rule, what they do even if le- 
gally justifiable, lacks any moral jus- 
tification, but sometimes they even hold 
back money illegally or make unfair 
back charges, though in such small 
amounts that it would be too expensive 
to institute legal proceedings. 

Frequently a general contractor, and 
sometimes a supine architect retained 
by an unscrupulous owner, will withhold 
a large part of a final payment owing to 
very technical and trivial omissions 
from, or faults in, the work of the sub- 
contractor. Instead of a reasonable de- 
duction in the settlement, one several 
times too large will be demanded, the 



CO-OPERATIVE SECRETARY 135 

only alternative being litigation or an 
annoying and time-consuming arbitra- 
tion. 

There is absolutely no way of reach- 
ing this class of business vampire ex- 
cept by co-operation of the contractors 
through their professional secretary. 
No individual can correct the abuse, but 
if all members reported their experi- 
ences, the cumulative proof resulting 
would be conclusive, and the secretary 
would be in a position to do a positive 
service to the community by warning 
the offender to cease from unfair meth- 
ods. There would not be the slightest 
suspicion of blackmail attached to his 
warnings as he would have no mercen- 
ary motive : he would simply tell such a 
contractor that there had been com- 
plaints lodged against him. If the prac- 
tice should be persisted in, the contrac- 
tors would probably cease to do business 



136 ETHICS OF CONTRACTING 

with him, but, in general, the mere noti- 
fication would be a sufficient corrective. 

Frequently, after a contract has been 
awarded, but not executed, the sub-con- 
tractor is told that his payments, or part 
of them, will be in the form of notes. 
If a protest is made the response is apt 
to be a threat to give the work to the 
next man, "who would be only too glad, 
etc., etc., to accept." Or, unusual and 
unfair terms of retained percentages are 
imposed. 

These, and other similar practices 
will persist until stopped by the con- 
certed action of some publicity bureau, 
and it should be one of the functions of 
the secretary to promote this. 

Of course, the general contractor is 
not always the guilty party. The sub- 
contractor is no better than the general 
contractor, and the only reason why the 
latter is specially criticized here is be- 



CO-OPERATIVE SECRETARY 137i 

cause he, as the buyer, has more oppor- 
tunities of taking unfair advantages 
than the one who is being paid. 

In the same way that the sub-con- 
tractor reports ethical transgressions to 
the secretary for correction, so should 
architects, engineers or general contract- 
ors appeal to the secretary if any mem- 
ber of the association errs. The associa- 
tion should not, of course, tolerate any 
infractions of fair business practice; 
and the only way a professional secre- 
tary can do truly effective work and re- 
ceive public support is by furthering 
justice impartially and by all possible 
means. 

Promoting Efficiency. In the field 
of improving conditions of office detail 
and general business management the 
secretary's province is especially broad 
and interesting. 

Almost all contractors, in their ig- 



138 ETHICS OF CONTRACTING 

norance as to methods pursued by their 
competitors, imagine that their own par- 
ticular office force and ideas as to book- 
keeping, ordering materials, estimating, 
keeping costs, etc., are nearly letter-per- 
fect. Generally the schemes adopted 
are the result of evolution, and often are 
clever and eminently adapted for their 
purpose. But, no matter how satisfac- 
tory most of them may be, there is al- 
ways room for improvement. 

If each contractor, in exchange for 
his best ideas, could have the option of 
adopting all of the best ideas of his com- 
petitors, it is most obvious that the bene- 
fit would be general. This is the very 
essence of co-operation, and it would not 
only be feasible but very simple and 
easy for the secretary to be most help- 
ful in this direction of endeavour. 

It would be too much of an undertak- 
ing, both on the part of the secretary 



CO-OPERATIVE SECRETARY 139 

and on the part of the members, to at- 
tempt to put through many of these im- 
provements at the same time. The most 
efficient way of bringing about the adop- 
tion of, let us say for example, the best 
form of estimating sheets, would be to 
have the secretary call for every form in 
use by the members, and, after a careful 
study, recommend the best one submit- 
ted, or a new form incorporating all of 
the best ideas of the entire exhibit. In 
a similar way, all sorts of methods might 
be generally introduced to save time, to 
prevent mistakes and, generally, to pro- 
mote efficiency, and so make for better 
results and at lower costs. 

Union Intermediary. In dealing 
with the union, the secretary has great 
opportunities for educating the men, 
and their confidence may be won by the 
very simple method of treating them in 
a straightforward way. It is not rea- 



140 ETHICS OF CONTRACTING 

sonable to suppose that rapid progress 
will always be made, because for years 
there has been a feeling of antagonism 
towards their employers, and it cannot 
be overcome in a moment. 

The idea to be inculcated is one of co- 
operation, and it will be found that the 
men will always respond to a genuine 
attitude of helpfulness and friendliness, 
and the time and trouble spent in ad- 
vising and instructing them will be re- 
paid to the employers many times over. 

Many of the better class of artisans, 
especially in the skilled trades, go to 
night schools, and that is to be com- 
mended and encouraged. The better 
educated the men are, the more reason- 
able they are and the less is the likeli- 
hood of strikes, dissensions, and other 
labour troubles. 

Professional Relationships. In the 
chapter dealing with the inter-relation- 



CO-OPERATIVE SECRETARY 141 

ship between the contractor and the 
consulting engineer, it was pointed out 
that the engineer should confine his ac- 
tivities to engineering and that the con- 
tractor should not attempt to enter the 
domain of the engineer. 

It is generally the inexperienced or 
unscrupulous contractor who imagines 
he is obtaining an advantage by also do- 
ing the engineering, and one of the du- 
ties of the secretary is to use his influ- 
ence in discouraging this practice. 

Even though the ethical point in ques- 
tion may be open to debate, it should be 
easy to influence both engineers and 
contractors on the basis of reciprocity 
and co-operation. If the contractors 
would decline to do engineering, thus 
deflecting this work into the profession- 
al channels where it really belongs, the 
consulting engineers would doubtless be 
amenable to the policy of including in 



142 ETHICS OF CONTRACTING 

the specifications on which the contract- 
ors bid apparatus and other items which 
the engineers often purchase direct. 

No hard and fast lines can be laid in 
regard to including apparatus in the 
contractor's work, as sometimes the con- 
tractors available are incompetent; but 
there are many occasions when co-op- 
eration is possible without being in any 
way prejudicial to the owner's inter- 
ests. In fact, the unit responsibility 
and the resultant advantages often out- 
weigh the possible additional expense 
involved. 

In developing and furthering this 
idea, the secretary should be governed 
largely by conditions and circumstances. 
The most satisfactory and the surest 
way of bringing the contractors and en- 
gineers together is to have them meet at 
informal luncheons or dinners. At such 
times ideas may be readily exchanged 



CO-OPERATIVE SECRETARY 143 

and things of mutual interest discussed ; 
and often a merely casual acquaintance 
will thus develop into a genuine friend- 
ship. 

Trade Belationships. In the chap- 
ter on the relationship between con- 
tractor, supply house and manufac- 
turer, the underlying principles of trade 
co-operation are set forth. In fostering 
such principles, the secretary cannot be 
expected to work out the details any 
more than in many of his other possible 
functions, but he can be of great use in 
acting as a representative of the con- 
tractors, and as means of communica- 
tion between them and those with whom 
they have trade relations. 

Standardization. A good many con- 
sulting engineers, especially those who 
are relatively inexperienced, try to show 
their individuality and, as they think, 
superiority, by specifying all kinds and 



144 ETHICS OF CONTRACTING 

manners of special devices and appar- 
atus when, very often, some standard 
commercial product would do equally 
well or better. 

To criticise an engineer's plan and 
specifications is always a rather ticklish 
operation from the contractor's stand- 
point ; and, consequently, the contractor 
is often put to no end of trouble, and 
often to an expensive delay in ordering 
what is called for, when a candid protest 
might have saved him. In such a situ- 
ation the professional secretary can do 
a great deal with a little diplomacy, 
which will not only benefit the contrac- 
tor, but the owner and the engineer as 
well, as he will be able to save what is 
often a very considerable and absolutely 
unnecessary waste of time and money. 

Some manufacturers purposely adopt 
odd sizes, measurements and fittings, so 
that their product will not interchange 



CO-OPERATIVE SECRETARY 145 
with that of other manufacturers. This 
is a difficult practice to overcome, and 
no one contractor can do it; but if the 
matter were handled by the secretary, 
voicing as he would the protests of many 
firms, the chances for reformation 
would be greatly increased. 

Arbitration. On account of his in- 
timate knowledge of the business con- 
ditions pertaining to his association, the 
secretary would be most eminently fit- 
ted to hear and arbitrate disputes aris- 
ing between members and between mem- 
bers and general contractors. In such 
capacity his personal character, integ- 
rity and judgment would be of the 
greatest importance ; and it would thus 
be within his power to be of immense 
help and benefit. It is, of course, un- 
necessary to dilate on the advantages of 
arbitration, as these are now so univer- 



146 ETHICS OF CONTRACTING 

sally recognized from the legal, prac- 
tical and ethical points of view. 

In summarizing the advantages of 
having a professional secretary, it may 
be said with assurance that not only 
would his salary be earned many times 
over, but he would be in a position to 
elevate business morally and improve it 
financially, and would have many op- 
portunities to clear the commercial at- 
mosphere of the sordidness and suspic- 
ion which so often darken it now. 



THE CENTRAL ESTIMATING 
BUREAU 

There are so many arguments in fa- 
vour of a central estimating bureau that 
it is a matter of wonderment that such 
are not found in every large city. Per- 
haps the most plausible reason is the in- 
nate lack of trust with which almost all 
business rivals view one another. It is 
this feeling more than any other which 
inhibits co-operation, and without co- 
operation waste and inefficiency are 
everywhere present. 

In having work estimated, particu- 
larly if it be of a complicated nature, 
the odds are all against the contractor, 
and consequently an inherent advan- 
tage always lies with the owner, or pur- 

147 



148 ETHICS OF CONTRACTING 

chaser. The reason of this is that in 
making up an estimate, there is never 
the possibility of including items or ma- 
terials not specified, while there is ever 
the chance that something which is re- 
quired has been overlooked. 

All estimates include items of mate- 
rial, about which there is only the ques- 
tion of quantity ; but the estimate of la- 
bour cannot depend entirely on data, 
but must depend somewhat on experi- 
ence and opinion. 

Occasionally a contractor will ask to 
be paid for some item which he had not 
included in his estimate, and although 
this is never accepted as a legal excuse 
provided it is reasonably clear that the 
item had been specified, there is never- 
theless some moral justification for an 
extra charge, based on the indisputable 
fact of the ever-present probability of 
errors of omission which establishes an 



THE ESTIMATING BUREAU 149 
advantage in favour of the buyer. This 
is recognized by some fair-minded 
people, and the claim honoured, but in 
the great majority of cases, commer- 
cialism governs and the advantage over 
the contractor is unhesitatingly taken. 

There cannot be the slightest doubt 
as to the ethical propriety of adopting 
some method of self-protection to elimi- 
nate this source of loss to the contractor. 
It even would be permissible for con- 
tractors to compare their estimates be- 
fore submitting their proposals, and 
some associations do this. 

If their co-operation stopped there, 
no one would complain except the sharp 
builder whose profits depend on others' 
mistakes; but unfortunately some bid- 
ders cannot resist the temptation of- 
fered for collusive bidding, which is ul- 
timately bad from the business stand- 



150 ETHICS OF CONTRACTING 

point, as well as always bad morally 
and legally. 

No such objection can be advanced 
in regard to the central estimating bu- 
reau. As its name indicates, its func- 
tion is to have all the estimating done 
from a central office instead of individu- 
ally by all the contractors who are fig- 
uring. The manifest advantages are 
that it saves an unnecessary multiplica- 
tion of time, trouble and, consequently, 
money; and ensures to a great degree 
increased accuracy. 

The saving in time, etc., in having a 
set of figures compiled once by a skilled 
and proficient estimating bureau instead 
of eight or ten times by as many differ- 
ent firms, is obvious, but it is not quite 
so evident why the figures of a central 
body should be more reliable than those 
of a well-managed, experienced, indi- 
vidual organization. The explanation 



THE ESTIMATING BUREAU 151 

will be anticipated at once by those who 
have had experience and who have given 
the matter consideration, but, for the 
benefit of the less well informed, it may 
be well to elucidate. 

In the stress of competition, where it 
is desirable to figure a large volume of 
work, it is virtually impossible to thor- 
oughly check every estimate that is 
made. Of course, all estimates should 
be checked, but in most cases this is done 
perfunctorily and in a more or less cas- 
ual way. 

In a properly organized estimating 
bureau all quantities would be taken off 
separately by at least two independent 
measurers, and if they did not closely 
agree the plans would have to be re- 
figured until the chief estimator was 
convinced that the totals were com- 
mercially accurate and reliable. 

Another advantage of the central bu- 



152 ETHICS OF CONTRACTING 

reau would be the elimination of the 
psychological or personal element of the 
estimator. As any contractor of expe- 
rience will testify, the desirability of any 
piece of work will unconsciously, if not 
admittedly, influence the estimator, both 
as to the amount allowed for labor as 
woll as in regard to the quantities of 
materials. 

If the contractor is not keen to win 
the particular piece of work being fig- 
ured, his scaling of the plans will be lib- 
eral; but if he is not busy, and is anxi- 
ous to keep his organization together, 
the measurements will be very careful 
and close, and no possible chance omit- 
ted in figuring out the shortest and most 
economical routes. 

The central estimating bureau would 
correct a very frequent abuse that some 
architects often commit in demanding 
estimates in an unreasonably short 



THE ESTIMATING BUREAU 153 

time. It could, and would, refuse to 
give figures in shorter than a prescribed 
time, depending on the complexity of 
the work, number of plans, etc., thus 
compelling a little more forethought, or 
better management on the part of the 
architect. An individual contractor 
could not afford to take any such posi- 
tive stand. 

Estimating offices are well known in 
England, and doubtless will be increas- 
ingly common in this country. When 
once firmly established and their integ- 
rity and reliability recognized, proposals 
based on lists of quantities furnished by 
the central bureau will become the ac- 
cepted thing. This would not only be 
fair and equitable, but would simplify 
to a great degree the letting of con- 
tracts, as under these circumstances any 
variation in the actual quantities re- 



154 ETHICS OF CONTRACTING 

quired would be charged or credited, as 
the case might be. 

There is no question but that a dis- 
interested firm of professional esti- 
mators would save many expensive mis- 
takes that are now unfairly borne by the 
contractor, and by increasing the ac- 
curacy and reliability of estimating 
would be of service to the public gen- 
erally. 

To meet the fears of members that 
the estimating bureau might make mis- 
takes, as it could and would, the asso- 
ciation should guarantee the quantities. 
A tax levied to cover this insurance fea- 
ture would be small compared to the 
losses individual contractors often suf- 
fer. 



PRICE STABILIZING 

There is nothing wrong morally, legal- 
ly or ethically in establishing and main- 
taining a fair price for good work and 
efficient service. 

In establishing selling prices for con- 
struction work, the problem is more 
complex than with some manufactured 
articles, and the only practical method 
is to fix costs as far as possible through 
a system of units. 

In determining the profit to be added, 
this should be done openly and above- 
board; otherwise, the architects and en- 
gineers would not be justified in giving 
their moral and practical support. Of 
course, office expenses will vary between 
different offices, and with different sizes 

155 



156 ETHICS OF CONTRACTING 

of contracts. For instance, there is ob- 
viously a greater proportionate over- 
head cost in beginning, superintending 
and finishing a thousand-dollar contract 
than if it were ten times that amount. 

With a fair selling price established 
for the work in the original contract, the 
contractor would not be entitled to, nor 
would he expect, the disproportionately 
higher profits that are customarily 
sought on extra work. 

The total cost to the owner would not 
be more, and it might often be less than 
under "cut-throat" competitive condi- 
tions, and the results would be much 
more satisfactory to all concerned. 

It is the general opinion of owners, 
architects, engineers and the public gen- 
erally that any trade must be very 
profitable which is prolific in extras, as 
with electric wiring, because every one 
knows that the extras cost much more 



PRICE STABILIZING 157 

in proportion than the original work. 
As a matter of fact, however, those con- 
tractors who have studied conditions all 
agree that the bane of any branch of 
contracting, replete with changes and 
additions, is just this factor of extra 
work. The explanation is, of course, 
that these extras are anticipated and 
discounted in making up the tender on 
the original contract. 

It may surprise the uninitiated to 
know that on certain classes of work 
where extras are virtually assured, all 
the low bids received will be less than 
the actual cost of labour and materials, 
with nothing whatsoever added for 
overhead, to say nothing of profit. In- 
deed, with many extras in sight the con- 
tract will very often be let 10 per cent., 
15 per cent, and sometimes 20 per cent, 
below the actual cost. 

It is therefore not at all extraordi- 



158 ETHICS OF CONTRACTING 

nary that the contractor who is awarded 
the work charges a relatively high price 
for the extras. It is not only natural 
and normal, but it is under the circum- 
stances absolutely fair and equitable, 
for otherwise the owner would get the 
work done for less than cost; the con- 
tractor would not only not be paid for 
the cost of superintendence, administra- 
tive and other overhead items, but would 
suffer an actual money loss as well. 

This state of affairs always causes 
friction and dissatisfaction, because the 
owner cannot, and will not, believe that 
he is not being robbed. 

If outside firms are brought in to do 
the extras the original contractor feels 
aggrieved, and if he does not openly ex- 
postulate it is only because, in his ig- 
norance, he feels that he is wrong and 
has been caught in an over-charge, 
when, as a matter of simple justice, he is 



PRICE STABILIZING 159 

entitled to his charge, and very often to 
even more than what he asks. This is 
because even most contractors do not 
know how much extras really cost. 

Among the better class of contractors 
there is a feeling opposed to going in on 
another man's job; and this idea is en- 
couraged in the offices of the better 
architects and engineers. This ap- 
proval is partly based on appre- 
ciation of the ethical questions involved, 
and partly on the fact that having dif- 
ferent contractors on the same work 
leads to a division of responsibility and 
all sorts of complications. 

This whole situation would be auto- 
matically corrected if some arrange- 
ment were eff ected which would estab- 
lish fair market prices for the original 
contract and for all extras, as under 
these conditions all additional work 
would go without question to the orig- 



160 ETHICS OF CONTRACTING 

inal contractor unless his services had 
been unsatisfactory. 

Although almost all costs of contracts 
and extras in the various branches of the 
building industry could be figured by 
unit prices, there would be special items 
which would have to be estimated in the 
usual way. Their proportion would be, 
however, insignificant in amount, com- 
pared to the regular items covered by 
unit prices. 

If contractors were free to buy in a 
strictly competitive sense, in accordance 
with their knowledge, judgment and 
ability to pay, the argument against 
standardizing selling prices might be 
stronger ; but, as a matter of fact, what 
they pay for labour is regulated or fixed, 
and the same applies more and more all 
the time in regard to the materials they 
require. This condition is largely 
brought about by the dominating influ- 



PRICE STABILIZING 161 

ence of the big producers of materials, 
all of whom more or less effectually reg- 
ulate prices in their respective lines. 

There is no question as to the increas- 
ing tendency to co-operate, as is shown 
by the recommendation of the Federal 
Trade Commission. If, therefore, a 
practicable way can be shown to stabil- 
ize prices for construction work, it 
would not only be the fair thing to do, 
but it would also be in harmony from 
the legal standpoint with the modern 
trend of affairs. 

Reference has been made to a way 
of ascertaining unit costs, and it has 
been found from actual experience that 
this method is simple, practical and ac- 
curate. 

In order that the data obtained be suf- 
ficiently full and the averages reliable, 
it is obvious that all members of the 
Contractors' Association must collect 



162 ETHICS OF CONTRACTING 

figures on a uniform basis, as has been 
mentioned heretofore. 

It is assumed that the responsible 
contractors in the various trades have 
organized, as this is a necessity for cop- 
ing with the concerted actions of the 
unions. The professional secretary is a 
great aid in handling the association's 
business, but his services are not indis- 
pensable in standardizing unit prices so 
that they may be accepted by represen- 
tative architects or engineers as fair and 
reasonable. To bring this about, the 
contractors should call a meeting with a 
few architects or engineers whose repu- 
tations and professional standings are 
unquestioned, and in consultation with 
them, exhibit their original data sheets 
and agree on a set of unit selling prices 
covering different kinds of work under 
normal conditions. 

These prices are not to be considered 



PRICE STABILIZING 16$ 

as absolutely final and binding, but they 
will be most useful, not only to contrac- 
tors, but to owner's representatives, as 
a very quick and close basis of estimat- 
ing; they will stabilize prices and they 
will very largely eliminate chances of 
error. 

It will be found that this policy of co- 
operation with one's competitors, com- 
bined with consultation with the archi- 
tects' committee in the manner de- 
scribed, will result in the general adop- 
tion of the unit prices. In fact, the 
very method used in establishing these 
prices will be so above suspicion that 
work will be given out in many cases 
without competition, the contract being 
based on the units adopted. 

Doubtless the question has arisen in 
the mind of the reader, what would hap- 
pen if some contractor did not wish to 
be bound by the established prices and, 



< 



164 ETHICS OF CONTRACTING 

in order to better his chances of getting 
some particular contract, chose to bid 
less than what might be termed the pre- 
vailing rates? 

Of course, this will happen constant- 
ly, and there is no legal or other way of 
preventing it. Sometimes gentlemen's 
agreements and other collusive schemes 
are resorted to, but in the long run they 
do not pay, and it is most certain that 
they do not permanently work. 

No one has come so close to a solu- 
tion of a way to avoid blind competition 
as has Arthur Jerome Eddy in his most 
interesting and admirable book, entitled 
"The New Competition." In this are 
worked out and explained some of the 
advantages of the open price method of 
competition. 

It is impossible to do justice by any 
short description to that most ingenious, 
yet absolutely legal and ethical way of 



PRICE STABILIZING 165 

stabilizing conditions. It is so novel 
and so opposed to all old-fashioned ideas 
of secrecy in competition, that it is dif- 
ficult to make those who have not tried 
it see its advantages. The more, how- 
ever, it is talked about, the better it will 
be understood and appreciated, and the 
following procedure is detailed in hopes 
at least to do some good in furthering 
the general adoption of the open price 
plan. 

To begin with, it should be understood 
that there is nothing illegal or unfair 
about it. As its name implies, it is open, 
with nothing concealed and nothing to 
be concealed. It is the very antithesis 
of collusion; its doings, minutes, by- 
laws and constitution are open to all. 

As applied to contracting, all mem- 
bers of an open price association are ad- 
vised, before the letting of any contract, 
in regard to the figures and all other 



166 ETHICS OF CONTRACTING 

details of the proposals of all other com- 
petitors in the association who are bid- 
ding on that contract. Any member is 
free to use this information and, if he 
so chooses, revise his bid so that it will 
be lower than any other submitted ; but, 
in all fairness he must let all those com- 
petitors whose bids he has seen know 
that he has cut his price and to what ex- 
tent, so that they can if they wish, cut 
theirs. In other words, machinery is 
provided for the auctioning down of the 
contract until the bottom price is 
reached. 

At first thought, this sounds to the 
sensitive ear of the contractor as ridic- 
ulous and silly, but a careful analysis 
will show that just the reverse is true, as 
has been, and is being, proved every day 
by experience. 

It has just been stated that the con- 
tractor "must" let his competitors know 



PRICE STABILIZING 167 

if he cuts his price. It should be clearly 
understood, however, that this obliga- 
tion to acquaint others with his action 
is self-imposed and is not enforced by 
any penalty, except, perhaps the dan- 
ger of losing in the future the advantage 
of knowing how his competitors are bid- 
ding. In other words, he may be rele- 
gated to his former method of bidding 
in the dark instead of in the open. 

It has been found, however, that it is 
seldom necessary to impose even this 
penalty, if penalty it may be called. 
Every member always retains the right 
to cut his price, but it is found that this 
right is rarely exercised. In a nut-shell, 
he finds it does not pay, and so, from 
purely selfish and mercenary motives, 
he refrains. 

As all of this may sound somewhat 
complicated, it may be well to describe 
the machinery and rules, and touch on 



168 ETHICS OF CONTRACTING 

the psychology of an open price asso- 
ciation. 

In forming such an organization, it is 
virtually imperative to employ some one 
of experience, partly to avoid any il- 
legalities and partly to explain features 
that would otherwise be obscure. A sec- 
retary having no interest in any of the 
member-firms must be selected. The 
professional secretary already described 
could very properly add this work to 
his other functions but, of course, to 
carry all of these out properly would en- 
tail the employment of clerical assis- 
tants. 

The interchanging of all bids and 
other information is through the secre- 
tary, the basic idea being that no one 
can have access to the bids of others until 
he has first filed his own figures. Any 
one filing a copy of his proposal unlocks 



PRICE STABILIZING 169 

all others, whether filed earlier or later 
than his own. 

It is obvious that with members of an 
open price association, the general con- 
tractor is no longer able to play one 
against the other, and this is, perhaps 
the supreme advantage. The contrac- 
tors bidding still have the privilege of 
cutting each other's prices, but they do 
so openly and wittingly instead of in 
the dark and without any knowledge of 
what their competitors may be doing. 
Of course, the lowering of a contractor's 
own figures on misrepresentation by the 
general contractor is now an impossi- 
bility, provided all bidders are included 
in the open price scheme. It is not nec- 
essary to the success of the plan to have 
all competitors members, but it is ad- 
visable to have as many concerns in- 
cluded as possible. 

If, for instance, there are four open 



V 



170 ETHICS OF CONTRACTING 

price bids and one closed, the result is 
that the four are operating in eighty 
per cent, of light instead of one hun- 
dred per cent., as would be the case if 
all five had interchanged figures. It is 
perhaps therefore advisable not to at- 
tempt an open price association until a 
substantial proportion of those in the 
trade are in favor; nevertheless, some 
benefit is felt when only a small propor- 
tion enter — and other firms are sure to 
follow. 

If bids are never cut it follows that 
prices as a whole are bettered, and open 
price bidding is opposed to cutting, al- 
though it does not prevent it. Other 
things being equal, the low bidder should 
get the contract, and with open prices 
this generally follows. It does not al- 
ways follow that a bidder who is high as 
disclosed by the open price plan, should 
not or will not take advantage of this 



PRICE STABILIZING 171 

information and so reduce his figure. It 
may be that he actually needs the work 
and so is justified in taking a contract 
low rather than have his organization 
disintegrate or lie idle. Under these cir- 
cumstances he should be allowed to bid 
lower in just the same way, although 
probably not to the same degree, as he 
would if the old-fashioned closed basis 
of prices prevailed. Under these cir- 
cumstances a contractor should not be 
stigmatized as he might be if he acted 
merely through covetousness. 

It is consequently a very important 
secondary duty of the open price secre- 
tary to gather and disseminate statistical 
information showing the total amount of 
work which is being figured; and also 
indicating the percentage under or over 
his normal average volume which each 
contractor is handling, compared to his 
average capacity or performance. The 



172 ETHICS OF CONTRACTING 

data for these reports is sent to the sec- 
retary, who tabulates the information 
but does not disclose the gross business 
of any firm unless that firm expresses its 
willingness to interchange figures. This 
is one of the fundamental features of 
open price agreements: each member 
may know the inside facts of another's 
business, provided he is willing to dis- 
close similar information of his own 
firm. It makes for co-operation of the 
truest sort. 

One of the most educational features 
of an open price association is the prac- 
tice of comparing costs on every con- 
tract bid upon. This may be done at 
the monthly meeting, by means of a 
black-board analysis of the different 
estimates ; or recapitulations of the esti- 
mate sheets may be interchanged, in the 
same way as with the proposals for do- 
ing the work. 



PRICE STABILIZING 173 

The second phase of the open price 
plan is embodied in periodical meetings 
which are as open as the bidding. They 
are held at a time and place where any 
one interested can attend ; and it is part 
of the plan that architects, builders, en- 
gineers, and even owners, are welcomed 
at these meetings, particularly when 
contracts with which they are associated 
are being discussed. 

At these meetings the secretary re- 
ports all cutting of bids which has oc- 
curred since the previous meeting, and 
whenever any member has met or cut 
another's price, he is expected to tell 
why he did so. 

It is pleasant to assume that most 
business men are by natural impulse 
fair in their dealings and would prefer 
not to have recourse to questionable 
methods; but even the small minority 
who are by instinct mean and under- 



174 ETHICS OF CONTRACTING 

handed do not like to be held up to scorn 
and condemned in open meeting. The 
man who would do a contemptible thing 
to his competitor if he thought no one 
else knew it, would think twice before 
acting if he felt that his action would 
be aired and discussed by others in his 
trade. 

Undoubtedly, the realization that if a 
man cut his bid on account of the knowl- 
edge interchanged by the open price 
plan he would be expected to explain in 
open meeting why he made the cut and 
all about it, would act as a deterrent to 
taking advantage of the information so 
obtained. Strictly speaking, however, 
he would have the right to cut, and his 
competitor could, and very likely might, 
retaliate by cutting still further on the 
same job or on another occasion. 

Everything being so above-board and 
open, with all motives, opinions, insin- 



PRICE STABILIZING 175 

uations and suspicions aired and dis- 
cussed, the members see that cutting is 
injurious to all and, unless there be some 
good and particular reason for it, un- 
fair. 

If an owner or architect, or even a 
general contractor offered a contract to 
a high bidder at or practically at the 
low man's figure, it would be consid- 
ered prima facie evidence that he to 
whom the work was offered had a real 
claim to the contract and, under these 
circumstances, he would not be expected 
to refuse the business. Before accept- 
ing the offer, however, he should, in the 
spirit of the open price plan, let the orig- 
inal low bidder know of his intention to 
cut. This might not always be feasible, 
in which case the circumstances would 
be told at the next open meeting. 

If it developed that any one partic- 
ular member was always claiming that 



176 ETHICS OF CONTRACTING 

such opportunities were frequently of- 
fered him, it is very conceivable that the 
other members might elect not to open 
their figures to such a universal favour- 
ite, in which case, of course, they would 
not be advised of his bids either. 

In practice it is found with open price 
associations that this combination of 
publicity and common sense effectually 
discourages cutting, which is of course 
only right and fair, as the low bidder is 
almost always entitled to the award. 

Not only is the cutting of prices thus 
discouraged in the minds of those who 
represent the selling end of the indus- 
try, but also those who have the letting 
of contracts are very soon influenced. 
There is nothing that more stimulates 
vicious competition than price cutting; 
and if one concern begins, the rest al- 
most inevitably follow. 



PRICE STABILIZING 177 

Contractors who have started an open 
price plan should be cautioned against 
expecting too great a benefit immediate- 
ly. Conditions will improve from the 
beginning, but the improvement will be 
a little slow at first. From the fact that 
it is slow may be assumed that it is sure, 
and if the improvement in prices is only 
two or three per cent, each month, as 
will surely be the case, it certainly is 
worth the while. 

The open price plan is helpful to both 
the large contractor with an extensive 
organisation and to the one-man con- 
cern. Profits are increased, losses are 
saved, suspicion is allayed and friendli- 
ness is encouraged. 

It is not claimed that open prices will 
bring about the millennium, but there 
is abundant testimony that the plan is 
a long step in the right direction, and 
while it conduces to the contractor's ma- 



178 ETHICS OF CONTRACTING 

terial welfare, he has also the moral sat- 
isfaction of knowing that his business 
is being elevated and placed on a higher 
ethical plane than ever before. 



APPENDIX 

The following remarks made by Mr. 
Eddy regarding an Open Price Society 
will give a clear idea of what the Open 
Price plan means, and how radically 
different it is from all other forms of 
trade associations : 

The value of an Open Price association does 
not depend upon the rise or fall of prices. The 
effectiveness of old line associations, price- 
agreements, gentlemen's understandings, etc., 
etc., was tested by the extent to which the prices 
were maintained at a higher level than market 
conditions warranted. The Open Price plan is 
a fundamentally different proposition, and if 
prices fall and members become dissatisfied with 
market conditions they must not blame the Open 
Price plan. 

I can best illustrate the thought I wish to 
convey by referring to the New York Stock Ex- 
change which closes at three o'clock. The ma- 
179 



180 APPENDIX 

chinery of that Exchange does its work day in 
and day out, year in and year out, mechanically 
and methodically. It is quite immaterial to the 
machinery of the Exchange whether prices go 
up or down, whether there is a panic or not, 
whether times are good or bad. Unquestion- 
ably prices are more stable, fluctuations, both 
up and down, less violent with the machinery of 
the Stock Exchange in full public operation, 
just as prices are more stable and fluctuations 
less violent, both up and down, with the ma- 
chinery of an Open Price association in full 
operation. 

You all recall the very great uncertainty re- 
garding prices which prevailed when the Stock 
Exchange was closed at the outset of the war. 
The very best of securities fluctuated violently 
in price. I know from personal experience 
that on the same day, and within the same hour, 
when I tried to buy a standard railroad stock I 
was quoted one price, and when I asked how 
much I could get for the same stock I was 
quoted five points difference, and was told that 
no one knew how much could be bought, or how 
much could be sold at anywhere near either 
price. As soon as the Stock Exchange opened 
these violent fluctuations disappeared, and a 
reasonable degree of certainty took their place. 

The monthly meeting of an Open Price asso- 
ciation to discuss generally actual market con- 



APPENDIX 181 

ditions is very like what would be a meeting of 
the members of the New York Stock Exchange 
to discuss actual stock market conditions. The 
meeting and the discussion, however valuable 
and interesting, would have no relation what- 
soever to either the Open Price machinery or 
the Stock Exchange machinery. They would 
go on as methodically and mechanically as a 
time clock. 

The value of an Open Price association, like 
the value of the Stock Exchange machinery or 
like the value of any Government statistical 
bureau, lies in the information it furnishes, in 
the systematic collection and distribution of re- 
liable data, and whether prices rise or fall does 
not affect in the slightest degree the value of 
the Open Price association, the Stock Exchange 
mechanism, or the Government Statistical 
Bureau. 

It goes without saying that men would not go 
to the trouble and expense of organizing and 
conducting an Open Price association if they 
did not expect to better conditions in their in- 
dustry, but an Open Price association does not 
attempt to improve conditions and reap larger 
profits by arbitrarily controlling and fixing 
prices. If prices are better and more constant, 
it is simply because the Open Price mechanism 
furnishes information which enables men to bet- 
ter adjust their business to market conditions. 



/ 



182 APPENDIX 

The Government crop reports instantly af- 
fect prices of all the crops covered. This is so 
true that these reports are guarded with the ut- 
most secrecy until the precise hour for publica- 
tion. They are gathered at great expense by 
the Government for the express purpose of en- 
abling farmers to sell their products more in- 
telligently — in other words to enable farmers 
to make more money year in and year out. All 
this work on the part of the Government is be- 
ing rapidly developed and extended and yet is 
in its infancy. As a rule Government reports 
are too long delayed to be of much benefit. The 
time will come when they will come out as fre- 
quently as trade papers. The aim of the Open 
Price association is to do more thoroughly daily 
and weekly what the Government does monthly 
or yearly. 

A natural question is, "If prices are better 
why don't customers object?" As a matter of 
fact buyers, when they understand the operation 
of an Open Price association, heartily approve 
it. This is a matter of record and of common 
knowledge in the associations. Buyers do not 
object to better prices or higher prices so long 
as the prices are not arbitrarily controlled. 
They do object to being victimized, but when 
they see that the Open Price policy tends to 
eliminate secret rebates, discounts, favours, and 
unfair discriminations between purchasers, and 



APPENDIX 183 

tends to place purchasers on a more nearly uni- 
form basis, they heartily endorse the plan. The 
Federal Trade Commission Act now makes un- 
fair competitive methods illegal. The laws of 
nineteen states and the Clayton Act makes un- 
fair price-discriminations illegal. The tenden- 
cy of the time is toward uniform treatment of 
buyers, large and small, toward giving the small 
competitor just as good a chance for success as 
the big, and toward giving the small buyer just 
as much for his money as the big buyer. The 
Open Price plan is a direct aid to the enforce- 
ment of these laws, inasmuch as it records daily 
all price variations. If there are any unfair 
competitive methods, or any unfair price-dis- 
criminations, the records of an Open Price so- 
ciety disclose same, hence they tend automatic- 
ally to disappear. 

Aside from any advance whatsoever in prices, 
the Open Price plan makes a good profit on the 
following items, — the elimination of secret re- 
bates, secret discounts, secret terms, and unfair 
price-discriminations generally, all of which 
tend to the unfair advantage of one buyer as 
against all other buyers who do not receive 
these secret favors; the removal of opportuni- 
ties for buyers to make false and market-de- 
moralizing statements regarding quotations; it 
is frequently stated in meetings of Open Price 
associations that this feature alone justifies the 



184 APPENDIX 

existence of an organization, and more than 
pays for all the time and money spent. 

Finally it may be stated that associations have 
voluntarily dissolved, and members have re- 
signed, because they could not see any price-im- 
provement, and did not have the patience to 
await the benefits that would certainly come 
from improved, franker, and more public 
methods of doing business. 



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